April 26, 2016
Close April 26
2 week change
US $ Index
US 10 Year Notes
Volatility increased dramatically over the past 2 weeks. Soybeans began this rally on March 2, and advanced $1.79 to its high on April 21 at $10.35. Then the market lost $.58 of that gain in just 2 trading days, before rebounding again the past 2 days. Wild times are back in Chicago.
Corn bottomed Apr 1 and surged $.55 by April 21, only to lose $.33 of that in those same 2 days. The lowly wheat market even tagged along for the ride and rose from 4.46 to 5.11 for a $.65 gain in 8 trading days, but gave back $.49 in only 2 trading sessions.
Speculators were the main driver for the huge price swings. They were buyers of soybean futures 7 weeks in a row, going from over 80,000 short to long 130,000 in the latest report. That means they bought over a billion bushels, which is more than twice the US carry out! They are still short a minor 30,000 corn contracts, but they were short 220,000 contracts only 6 weeks ago.
There was some fundamental justification for the price explosion. It won’t stop raining in Argentina, where they’re trying to harvest their bean crop. Many in the trade think they may have lost 5 mln mt, or nearly 10 percent of their crop. Meanwhile, Brazil needs a rain on their double crop corn. Some yield loss has already happened, but some scattered rain is now in the forecast.
The demand story is confusing. Rumors persist that Brazil imported corn from the US to meet their feed demand on their east coast. China also imported corn, despite all the chatter about their huge stockpiles. In both cases it is logistics that is the problem. There are surpluses and deficits, depending on the area. Markets are efficient and buyers will always source supplies where they’re the cheapest.
Most eyes are now on North American weather. USDA announced US farmers have 30 % of their corn planted, well ahead of the normal 16 %. Planting progress will slow with the wetter forecast for the next 2 weeks. Traders will, however, likely discount any adverse spring weather after last June’s excessive rains still resulted in a record soybean yield and the second highest corn yield on record in the US.
Stronger crude oil prices helped the Canadian dollar gain another cent. This dropped soybean basis 15 cents and corn basis 5 cents since my last report. Flat prices broke over the $12.00 round number for both old and new crop soybeans again, where farmer selling picked up. Corn and wheat prices are still lagging the soybean strength.
Volatility presents opportunities to both buyers and sellers. It also increases stress levels for all involved. It is important to take advantage of these larger price swings. Putting incremental, pre-set orders in the market at prices you can live with (aka profitable) is the easiest way to use volatility to your advantage. All farmers are aware that price gains can quickly disappear. ♦
- Frank Backx, HDC Grain Marketer