- Algorithm-based investment programs have not evolved as far beyond being simply driven by headlines as I had thought.
- Fundamentals win in the end, with merchandisers refusing to play along with the fund-led rally in soybeans.
- US available stocks-to-use of corn remain tight, though a larger harvest is on the horizon.
What a week this has been. And we still have much of Friday ahead of us before the closing bell sounds and we head off to our favorite watering hole to contemplate all that has happened. Lost in the chaos of news out of the Black Sea region has been the Dow Jones Industrial Average ($DOWI) rallying to a new 15-month high, the US dollar index ($DXY) falling to a new 15-month low, and September frozen concentrated orange juice (OJU23) hitting a new all-time high of $3.00 (per pound). It was the grain and oilseed sector, though, that garnered most of the attention, with markets reminding us of three important things heading into the weekend.
Watson, my name for the algorithm-based investment industry as a whole, is not as smart as I gave it credit. To put it another way, Watson hasn’t evolved as far beyond its early days of being headline driven as what I thought. Think back to how this week’s events unfolded. Sunday through Monday morning the headlines screamed of Russia ending the Black Sea grain deal. September Chicago wheat (ZWU23) opened 4.5 cents higher Sunday evening before extending its rally to as much as 27.5 cents before reality set in and the contract closed 7.75 cents lower for the day. This selling continued early in the overnight session until Tuesday morning, when the first wave of headlines talking about Russia's attack on the Ukrainian port of Odesa with 60,000 mt of grain being destroyed. September Chicago gained as much as 21.0 cents Tuesday. Wednesday and Thursday saw the combined headlines of statements from Russia’s Defense Ministry regarding the fate of ships trying to make their way to Black Sea ports, either Ukrainian or Russian. September Chicago added another 80 cents to its run through Thursday’s high. But again, reality is a difficult thing, and the world knows it isn’t going to run out of wheat. At Thursday’s close the September-December Chicago futures spread closed covering 68% calculated full commercial carry (cfcc), beyond the bearish threshold at 67%.
Newsom’s Rule #6: Fundamentals win in the end, still holds true. The thinly traded August soybean contract (ZSQ23) went along for the bullish ride this week as Watson continued to add long futures positions. Last Friday’s CFTC Commitments of Traders report (legacy, futures only) showed this group holding a net-long of 90,863 contracts, and possibly increased their holdings beyond the recent high point of 101,849 contracts based on August futures gaining 21.5 cents from Tuesday-to-Tuesday. But merchandisers haven’t played along with this noncommercial-led rally. Since the end of June, the August futures contract gained 76.25 cents. At the same time, the national average cash price dropped 5.75 cents through Thursday evening’s calculation. What this tells me is despite continued tight supplies in the US, with the end of June available stocks-to-use figure coming in at 4.5%, the lack of demand for old-crop soybeans is the overriding factor. This past Thursday’s weekly export sales and shipments update, for the week ending Thursday, July 13, showed the US on pace to ship 2.014 bb of soybeans, down 4% from last year’s reported shipments of 2.1 bb. Additionally, the US had only 102 mb of unshipped sales on the books as compared to the previous year’s 243 mb for the same week.
US corn stocks remain tighter than what is being officially reported. In its July round of supply and demand guesses, USDA used some creative accounting to drop 2022-2023 ending stocks by 50 mb, despite decreasing its already low export demand guess by 75 mb. The reality is US production hasn’t been as big as advertised for a number of years, setting the stage for what should be another entertaining September 30 Quarterly Stocks report, for stocks on hand as of September 1. This number is viewed as the de facto old-crop ending stocks figure, at least until it is quietly changed in subsequent Quarterly Stocks reports. I know the argument is out there that US corn stocks are more comfortable than those for wheat, but that simply isn’t reality. At the end of June US corn available stocks-to-use was 10.6%, due in large part to a lack of demand, while the SRW wheat number came in at 38.4%. That’s a substantial difference. Additionally, the September-December corn futures spread covered 19% cfcc as June ended and 27% at Thursday’s close. National average basis remains strong for this time of year, with my Thursday calculation coming in at 43.0 cents over September futures as compared to the previous 5-year average (median) weekly close for this week of 8.25 cents under September. All this with little demand to speak of.
More Grain News from Barchart
- Wheat Weaker on Friday Morning
- Soybeans Retreat Lower Overnight
- Corn Lower on Friday Morning
- Wheat Closes Mixed on Thursday
