Commentary
In my view producers and specs and have been awaiting an overdue price recovery to increase 2023-crop corn and soybean sales. Hope and Prayer are never appropriate trading strategies. With that said however, nothing goes up and down forever. Short covering rallies in corn, beans, and meal have been limp in size in my view and have simply hasn’t developed as funds have amassed a record combined net short position in these markets. For corn, the best demand time seasonally is the first quarter of the year. U.S. export sales for the week ended Feb. 22 topped 1 million metric tons for the fifth time in seven weeks, though that wasn’t enough to encourage enough fund shorts to actively cover short positions. Argentina’s crop weather looks set to support a large harvest, whereas Brazil’s safrinha crop has the potential to fall well short of last year’s record. But a big reduction is not assured, thereby keeping funds comfortable with their record next short position for now. The Feb average of the harvest contract in corn (Dec), soybeans (Nov) and Spring Wheat (Sep) are $4.66, $11.55, and $6.84 respectively. The price levels in all three commodities are significantly lower than the last two years and have pulled back to levels seen in 2021 while costs of production are 12% higher than 2021 in my opinion. Do the higher input costs for corn translate to higher bean and wheat acres? Secondly, does it matter? As you can plant less and produce more. New crop needs a weather premium and/or weather scare. Longer term weather models agree El Nino will be gone way before summer hits with many calling for La Nina to return. La Nina translates to hot and dry in the Midwest (usually). It is my belief that if one wants to be long grains or start to establish long positions in grains that one use new crop contracts like Jan 25 or March 25 beans and Dec 24 and March 25 corn. These contracts have the unpredictability of planting then growing season, where weather and its impact on future yields is a complete unknown. If this winter, which is said to be the warmest ever is any indication of things to come, we could experience a wild growing season.
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