Sunday Scaries: What I'm Watching This Week In The Grain Markets

I have been doing this long enough now to recognize and understand that there are no guarantees, especially when it comes to market movements, but this latest stretch of fund selling, and whipsaw trade action has me perplexed. 

It is not that I do not understand why we are trading the way we are, the list of fundamental factors on the bull side and the bear side are clear. It is more that I’m trying to discern what the catalyst will be that breaks us out of the range, and of course even more importantly, which direction we head once we do.

Last year at the end of April I worked through the previous ten years of markets to see what history had to say about the potential for a rally. In my combing of charts, I found that the market had provided a pricing rally in the summer 9 out of 10 years. The year without a rally for corn came in 2014 when Mother’s Day weekend provided the last great opportunity for pricing. You can re-read that analysis here if you’d like. 

Coming into this week, the market doldrums are really getting to me. Farmers across the country are feeling the pinch as they would have traditionally seen an opportunity or two by now to market grain to help with cash flow and quality needs. With heavy fund selling seen in grains each week since the end of November, any opportunities presented so far have been less than stellar. 

With soybeans and corn both trading near contract lows and the market seemingly comfortable with current pricing, I wanted to look back over the last 10 years to see how the markets tend to perform between February 1st and May 1st each year.

Digging into the numbers for the pre-planting stretch left me a little directionless at first glance. Over the last 10 years both corn and soybeans have seen their markets rally 5 times, trading lower 4, and seeing markets remain basically unchanged for the period once. 

We saw gains in corn in 2014, 2017, 2018, 2021 and 2022, with the average rally in the 2 month period running around 73 cents. Of course, if you take out the big rallies that added $1.19 in 2021 and $1.65 in 2022, it’s closer to 23 cents worth of average gains. 

Looking at the years corn traded lower, we see the average loss at 38 cents. Last year saw the biggest drop in the February 1st through May 1st period, losing 65 cents, while 2020 saw a similar loss, losing 54 cents during the Covid lockdowns. 

For soybeans, gains were seen in 2014, 2016, 2018, 2021 and 2022. The average gain in beans is far greater, running around $1.30, with the biggest gains in 2021 and 2022 like corn, though big gains of over a dollar a bushel were seen in 2014 and 2016 as well. For the years with losses, we see the average drop is around 72 cents, with 2023 seeing the biggest decline, losing a dollar.  

While this exercise may not have provided clear evidence of seasonal direction between now and planting, it did provide some confidence we could see market strength, especially when comparing the fundamental set ups in the years we saw rallies to the one we’re currently working through.  

When it comes to the other things I am watching this week, I am hopeful we have found short-term bottoms in both Brazilian basis values as well as in the Chinese hog market. I am not alone when I say the optimism I felt a week ago about China’s economy finding support via some type of major rescue package has all but faded this week as there has not been another mention of the plan. 

 

While cuts to bank reserve rates and other steps to loosen credit are seen as supportive around the world, just offering credit with consumer confidence where it’s at in China, will not be enough. Many citizens have lost a great part of their savings, first in the collapse in property values. With the over $6 trillion drop in the country’s stock market from its highs and a youth unemployment rate thought to be nearing 30%, it will likely take great efforts to increase consumer confidence. 

The country’s government has a handful of days yet to announce any type of major plan ahead of the Lunar New Year, with the two week holiday set to start this Friday.

In Brazil, bean basis finally found support Friday, bouncing back 15 cents for March/April shipments. Margins for crushers in China have started to improve with the drop in bean basis and futures, helping to provide optimism we could see a round of buying when traders return from holiday. There are some worries certain feeders may find themselves out of position, or significantly long at much higher prices though, prompting some talk of credit risk, and giving us yet another thing to watch throughout the summer. 

In Argentina, we’re seeing Milei cut proposals out of his bill to reform the country’s economy. At this point it appears increases in export taxes are off the table, thrown out with other proposed changes to income tax laws among other things. With the country’s unofficial exchange rate still showing signs of weakness and prices falling as they have, the farmer in Argentina has all but stopped selling grain, waiting to get closer to harvest before feeling forced to make a decision. 

In other news, we will get a supply and demand update from the USDA on Thursday. There are a lot of interesting tweaks that could be made to both the US and world balance sheets, though major adjustments in February do not tend to happen from an historical standpoint. 

Going into Thursday, traders believe we could see another cut in bean export sales, with our ability to compete in the world market somewhat limited by strong crush demand keeping domestic basis values elevated. There is talk in the industry that bean ending stocks could come in well over 300 million bushels when all is said and done, with some saying it could be in the upper 300s—though it will take months to confirm anything of the sort. 

Brazilian bean crop estimates have been trimmed again this week, with the consensus seeming to fall in the upper 140s to 150 mmt or so, down around 4 mmt from where we started the month. 

Corn production in Brazil is still in question, with many farmers choosing to plant now that input costs have fallen off as they have. Economics still do not necessarily support planting the top genetics among other top-end production habits but the reduction in acreage that once looked like it could be as large as 25%, will probably be a less than 10% decline.

Argentina’s “super crop” will still be great, especially when compared to a year ago, though the top end has likely come off after the recent run of heat and dryness across much of the country. 

We also must watch the situation in the Red Sea that continues to affect trade in and out of Europe and the Black Sea. Reductions in grain movement have not necessarily been reported, though there are thoughts with all the uncertainty already in place moving grain out of the Black Sea, some may choose to avoid trades that would make the route necessary just to be extra safe. 

In the end, while I would love to say there is a clear path when it comes to price direction these next several weeks, it will likely boil down entirely to cash market moves and how eager the world farmer decides to be when they decide to sell. We also need to hold support at these levels, with us wanting to continue to see higher lows in the hopes we can convince shorts to start covering. As always, let me know if you have any questions! Have a great week. 

• Double Digit Losses for Friday Soybean Futures
• Wheat Futures Close Mixed into the Weekend
• Corn Futures Fall into the Weekend
• Grain Update: What's Driving Corn, Wheat, and Soybean Prices in February?