How low can we go? That’s the limbo question, and the answer for the grain market is, of course, I will tell you a few days into the next rally.
The ugly truth is that the spec funds are pounding the markets with record short levels, and there is not much reason for other traders to fight them off right now.
Corn and soybean futures contracts found new lows Feb. 23 and 26 and then bounced a little as bargain hunters bought some of the distress-priced grain. March corn futures closed below the magic $4 level Feb. 23 at $3.99 3/4. That’s just one tick below $4, but it was notable, after a trade of $3.98 1/2 during the session.
The corn low price represented the first time since November of 2020 that the lead month futures traded below $4. This makes the trading this week notable but not fun. There was a time when $3.50 corn was a miracle, but that time was 1988. With the exorbitant input costs of the 2023-24 crop, $4 a bushel now is a lot worse than $3.50 was then.
Blame the drop fundamentally on the fact that we worried about raising the crop all spring and most of the summer, but we ended up with record production when the crop was in the bin. We struggled with a wet spring in the east that delayed planting. We agonized over drought in the rest of the Corn Belt but kept getting timely rains in most of our growing area.
Now we have projections that would indicate growth in our carryout not just this year, but next. The record crop we harvested has raised our projected carryout by 60%. The early projections for our next crop are highly speculative, but we always assume at least a trend-line crop this time of the year. That would give us another 17% bump in the carryout which would give us supplies that we haven’t seen since the 87-88 crop. Another record we could do without.
It hasn’t helped that the South American competitors have had record corn crops themselves. This comes in spite of the fact that we keep talking about production problems there. They keep squeaking through, also, and they have successfully taken world market share from us.
Then, there is domestic consumption. Most of our corn is used at home. That home usage is shrinking as livestock numbers have dropped. The drop in cattle, especially, has meant high prices for cattle and low prices for corn.
Ironically, some of the reason cattle numbers are lower is that the high corn prices squeezed out the good margins, so feeders reduced their herds. The other reason is the drought in the Great Plains made feed expensive.
The current technical reason for prices dropping is that the big spec funds have accumulated a record level of short positions. We now have, as of Feb. 20, 329,000 short contracts of corn. Add the last three days of last week in, and we may actually be over 355,000 contracts in the market that are shorted by the big players. As long as these interests continue to add to positions, it is hard to see prices rebound.
The good news is that funds are fickle. At some point, they will sniff out a bottom and reverse positions. This could dramatically affect prices, at least for a few days. We did, in fact have a significant rebound in corn prices Feb. 26.
After a $3.94 1/2 low, the board rallied to a $4.07 close. We were currently (5 a.m. Tuesday as this was being written) trading at $4.08 1/4. Don’t expect any big turn until we stir up trouble at planting time or a summer weather event threatens yields.
The corn charts reflect the gloomy mood in coffee shops in corn country. With three minor upturns in the chart, March futures (I should be getting my thinking over to the May) have had a steady decline since a high of $5.21 1/2 Oct. 20. We lost $1.27 to the low early Feb. 26 at $3.94 1/2. This reminds me of a remark I heard this weekend, when a friend complained about being 60. My reaction? “Oh, to be 60 again!” Or, in this case, oh to have $5 corn again!
Soybeans
Soybeans have a chart similar to corn, even though there are better fundamentals in the soybeans. We believe that the South Americans have a better idea of their coming soybean crop than the U.S. Department of Agriculture does, but we seem to be trading USDA ideas so far.
Meanwhile, Brazil’s AgRural has dropped its estimate of their bean crop again, to 5.427 billion bushels. They started out at 6.048 billion, so this hot, dry period is hurting them. We are actually very tight with soybean supplies and have already imported some into the Southeast.
At the same time, the negative for soybean prices is that we now expect next year’s acres to increase. This comes in reaction to low prices for corn and higher production costs. We will know more about that at the end of March when the Planting Intentions Report comes out from USDA.
Going back to that soybean chart, we see a high Nov. 15 at $14.10 3/4. Our low Feb. 26 was at $11.24 3/4, nearly $3 lower. We were most recently trading March soybeans at $11.48, 23-3/4 cents off the low. This gives us a hint that soybeans could rally before corn, even if that rally is late this summer.
Wheat
Chicago wheat futures have a different pattern, with large daily ranges and large cycles of highs and lows. The result, however, is similar to the other grains.
We have had huge losses in a pattern of mostly lower prices for months. May futures had a high in harvest, at $8.07 July 25. A low came Sept. 29 at $5.93, a huge decline in two months. We had another high at $6.60 1/2 Dec. 6. The low came Jan. 18 at $5.85 1/4.
After another small cycle, we put in the new contract low early Feb. 26, at $5.60. We have exported more than traders expected, according to the last report from the government. The last week reported was 17.7 million bushels exported. Three million of that went to Japan. That puts us at 463 million for the marketing year so far, moderately below expectations.
(Marlin Clark has been observing and trading cash and futures grain markets for over 50 years. Comments are welcome at 440-363-1803.)
