There is good news in the grain markets on the morning of March 5 — it just comes with a caveat.
May corn futures gained 11 1/2 cents last week. March 1 was a down day, with prices up another 2 cents at one point, but then May closed down 4 3/4 cents. We saw May corn up 5-3/4 cents March 4, more than wiping out the Friday loss.
Then comes the bad news. May soybeans were actually still down again last week, with a loss of 11-3/4 cents. Soybeans rallied as much as 7 cents March 4 and closed up 3 3/4 cents.
The really bad news was that the market was “damned with faint praise.” That is, analysts struggled to explain why corn futures went up at all, just talking about “short covering.” One analyst I read even used the dreaded “dead cat bounce” to describe price action.
Dead cat bounce
That requires a little explanation. Corn futures have been down for three weeks and lower most of the time in a long slide since late October. They finally got below $4 on the March futures before we started to use May futures to price cash corn last week. During that period, the spec funds have added to short positions, basically expressing their belief in lower prices. In a trading environment, that is bearish, a significant short spec position is often a guarantee of lower prices, so their position is self-fulfilling.
By “short covering,” the funds bought back some corn contracts to “cover” some of the short positions they had accumulated. They were reported to have bought 45,475 contracts (227,375 bushels) of corn futures and options. Of that, 10,034 contracts were new positions. The result leaves them net short 295,858 contracts, which is still near the record position.
The “dead cat bounce” is an old market term for a market that actually goes up for a few days, like corn futures did last week, but is seen to still be in a downward trend. The idea is that even a dead cat can bounce a little. That is not too pretty a picture for the cat, but you get the idea.
A few up days does not change much if it is just a “correction,” another overworked term used by analysts when they can’t find a better one and are not really seeing a significant change. And, what do you know? May corn futures are down 2 cents again in early trading March 5.
Soybeans
In the case of soybeans, the market continued lower, to a low Feb. 27 of $11.28 1/2. Since Nov. 15 we have lost almost $3. No one is even pretending to see a bounce in this market for a little while longer. We are getting close enough to $11 dollars that that price could be a reality soon.
The soybean market is faced with the reality that the Brazilian harvest is now almost 50% done. Uncle Sugar is holding on to an estimate of the crop that is better than that of the Brazilians on the scene, but we will trade that number until we have proof it is wrong, which will happen in the next few weeks.
Then, the world will turn to Brazil for soybeans, and their prices will be low enough to make them the supplier for the world for several months unless there is some major surprise. There’s not even a dead cat to bounce in this market.
Wheat
A new low in Paris milling wheat helped the Chicago wheat market go negative after some bounce. In this case, the problem was technical, which means the charts did not behave well. The price was run up near resistance. When it did not continue, traders sold it off, where it fell through some sell stops and got ugly.
The other excuses for the market describe the Friday price action, which was negative for all grains. The corn was seen to be lower on “profit taking.” That was those spec funds reversing some positions.
Basis contracts
There may have been some selling action from farmers who gave up and priced the basis contracts that were against the March futures. When we got to First Notice Day, the farmers either had to roll to May, losing 11 cents in the spread, or just price the corn. Either of these moves involved selling futures, pushing futures prices lower.
Basis contracts are popular because this is the time of year to physically move grain. January to March movement is a common delivery, using labor that will not be available in April and May as we start planting.
Basis contracts are used when prices are low and farmers don’t want to take the current market for corn. In this case, they guessed wrong, and the prices got worse while they were delivering unpriced grain. The result of all this is the conclusion in the country: At least we already priced our soybeans!
Exports
Another reason for market movement is always exports. We shipped 110,000 MT of corn last week with the biggest receiver being Taiwan. China booked 1.2 MMT of corn, barley and sorghum to be delivered later. For the week ending Feb. 29, we shipped just over 1 MMT, down from 1.3 MMT last week. We are still ahead of the export pace we set last year.
In the case of soybeans, while we are the world’s supplier, we shipped 126,000 MT to what is called an “unknown” destination. That means it will be reported later. The last week of February saw 1.02 MMT moved, which is lower than last week but more than the same week last year. We are, however, 8.55 MMT short of our current marketing year’s forecast with 34.2 MMT shipped.
