Morning Comments June 24, 2022

Agronomy Early Corn

An ugly day all around yesterday as continued macro pressure and worries of further downside risk without a weather issue prompted sellers to return in a big way. At the end of the day we saw July wheat down 39. July corn finished 21 lower with December down 38. Soybeans lost 60. 

While seasonals tend to turn negative as we work our way into June, the speed at which we have lost value after reaching recent highs has been shocking to even the most seasoned trader. The downturn however hasn't been just centered on grains, with only VIX, heating oil, feeder and live cattle trading higher on the month. Canola and cotton have been the biggest losers so far, falling over 25% each, while soybeans and corn have lost 10.5% and 12% respectively. 

Open interest is falling off indicating that this current move is tied to the exiting of market positions, as traders either do all they can to protect what gains they have left or work to cut their losses. 

The cash market has been incredibly confusing to many market observers as of late as basis strength in the West has pushed values to near record highs, with some plants reportedly paying as much as 90 over. The strength in cash basis has pushed the July/September corn spread out to new highs, exceeding even the war fueled pop in spreads seen in early March.

What's most interesting about this however is the relative weakness seen across much of the Eastern Corn Belt, and an overall inability to perform when it comes to moving a large chunk of grain any kind of significant distance quickly and efficiently. Many are starting to wonder if we are in fact short on supply as Western basis would indicate, or if perhaps we are seeing the effects of a tattered supply chain--ie shrinking trucker base and poor rail performance--making it more costly to move bushels.

We will get some insight into what the USDA believes is the case when it comes to stocks in next Thursday's planted acreage and quarterly stocks update.

In other news, we are watching what is happening in China as demand signals there seem a bit off as well. Corn futures on the Dalian exchange have dropped 9% this month, though cash values have only fallen off 2% or so in the country's major demand regions. 

There are continued concerns regarding soybean demand in the country as well. Traders there report supplies of soybean meal are plentiful enough some processors in certain regions are looking at possible shutdowns, planning to buy meal on the open market to fulfill contracts rather than buying beans and producing it themselves. Reports indicate reduced meal demand due to poor hog margins and lower aquatic feed needs continue to pressure crush margins.

In addition to questions on meal demand, the restaurant industry reported a 21% drop in retail spending versus May 2021 as consumers choose instead to stay home. The drop in restaurant business has also reduced the country's vegetable oil and meat demand significantly.

Looking ahead we will continue to watch weather closely. Overnight guidance shows continued widespread rains expected in the 11-15 day forecast with precipitation rolling forward into the 6-10 day as well. With dry conditions firmly entrenched across much of the Eastern Corn Belt the rain is much needed.

We will get updated export sales as well as ethanol data this morning as EIA information was delayed yesterday due to a system issue. Markets are trying to come back a bit this morning as they have worked their way close to oversold territory this week.

Corn up 10 to 15

Beans up 5 to 7