Charts of the Day – May 26, 2023
Afternoon Market Commentary – May 26, 2023
by: Chris Betz
|Old Crop (futures month, change, settle price)||CK3||13’2||604’0||SK3||13’2||1337’2||WN3||11’6||616’0|
|New Crop (futures month, change, settle price)||CZ3||18’4||534’4||SX3||17’2||1189’4||WN4||11’6||673’0|
Technical Thoughts – May 25, 2023
By: Ken Lake
The corn sector of the ag contracts we follow was the sole bright spot this week as shorts were forced to cover on the social media induced flash drought trade. Earlier in the week a forecast map based on one of about five weather models was circulated displaying a large hole surrounding the US corn belt where no rain was forecast for the next two weeks and comparatives were drawn to the 2012 drought year.
The problem is that current sea surface temperatures anomalies are not the same as they were in 2012, as seen in the graphic below. This data does not support the idea that we are repeating the pattern seen in 2012.
That said, the current short-covering rally should be a selling opportunity for farmers. July corn managed to trade and close yesterday above its 20-day moving average. Trading above the 20-dma should continue to force shorts out of their position. This morning the 20-dma is 581. We are trading at 588. An upside target would be the 50-day moving average, 606. Place sell stops at 580.
December corn is enjoying the same short covering rally as July corn. Closing yesterday and trading today above its 20-day moving average is offering us small hope that an additional rally could occur. Stochastics are showing a little weakness this morning and a selloff is at risk if we trade below the 20-dma, 517. Farmers should protect 500 and consider sell stops at 509. A break of 490 opens risk to trade to 450.
July soybeans have not participated in the current flash drought rally that corn is enjoying. After making a low near 1294 support a few days ago the contract rallied to over 1300 and has traded sideways all week. Which leads me to point out how important the 20-day moving averages are. Corn picked up momentum on short covering as values popped above the 10-dma then the 20-dma and has caused quite a stir. No such stir is apparent in the soybean sector supporting the idea that the rally in corn is more technical than fundamental. Farmers should protect 1300.
November soybeans, like its old crop counterpart, is ignoring the goings on in the corn pits. Daily chart support is 1153, resistance is 1196, 1230. No upside targets are apparent. Protect 1150.
July wheat continues to track sideways along support at 595 with the risk to trade to the life of contract low, 536. No new recommendations.
Fertilizer Update – March 2, 2023
By: John Ezinga
Those of you who have stared down the urea producers have improved your spread management position.
As you can see, we are clearly into the green. Is it a victory? LET’S DO THE MATH
Forward contracts for CZ23 have dropped about 50 cents per bushel since July 2022. If you use 150 bushel/acre as a base then you are down $75/acre on the sale of your corn, but you have saved $20/acre on your N cost….so a net opportunity cost of negative $55/acre.
I think this highlights the importance of grain marketing and not strictly focusing on your input costs…..as you purchase inputs it is wise to make forward sales. Yes, it feels good to see the spread back into the green but if at the same time corn coming down is the main factor for the relationship to fall into the green is it really a win? CLEARLY NO!
Now, above example just looks at one input, if we take a broader view of the overall crop nutrient market what does that look like?….after all, we are keeping score of the whole game not just one inning.
Here is the MATH considering the 4 macro inputs (N-P-K-S) priced on July of 2022 vs March of 2023.
Obviously, this is just a part of the bigger picture, you still have the big rabbits like labor cost, land, and machinery costs…etc. But it clearly emphasizes grain marketing importance. MAC always recommends managing spreads in proper proportions. If you lock in part of your inputs, it is wise to consider that proportion of your total cost structure and market outputs accordingly.
We are spread managers!
Let’s look at the charts because a picture is worth a thousand words. Remember, the main function of these charts is to signal the relationship over a long period of time and to give you confidence that the relationship is in your favor or not. It is not the only factor in profitability.
Potash may have found support here for spring pricing. It appears to me that most of the industry has taken a position to prepare for spring planting and I would guess that pricing will be sticky in the current range. $525-$600/ton
Some guys use these charts on P an K to signal when to build soil levels, when to maintain levels, and when to mine levels.
Of the four major inputs Phosphates seem to be holding up the best.
I think this value will fade through spring. Expect 700-775 to be the starting price and it would not surprise me to see mid 600 by the end of the spring.
CF and Koch have been pressured by imports since the turn of the new year. The summer fill values of last July have been taken out to the downside. A lot of suppliers have higher inventory values that will be lagging the spot market as it moves lower. I think the domestic manufacturers will be surprised at the amount of UAN that was purchased from abroad, and the spring spot volumes will be down more than expected. This could lead to a dismal summer fill program….remember we all have one-year memories. If corn moves lower….it will be even worse.
Add 9% cost of money to this equation and hold my beer. (ht- AB)
No geopolitics are mentioned here and there could be black swans that come to roost. The two I am keeping eye on are the war in Ukraine and the ongoing currency war. Weather is always an issue and will play its role somewhere in the world.
Known unknowns are not what usually burn you….unknown unknowns are what catch you with your marketing pants down!
Here is a long-term chart of corn that I think clearly lays out the downside and potential upside?
US dollar strength/weakness will clearly play a roll in nominal value of corn. The chart below really clarifies inflation’s role in the price we receive. We are clearly near the upper end of the current price range.
Does your marketing plant have contingencies built in for a breakout? Or a test of support? Give your MAC merchant a call….we have programs to help on both fronts.
(KEY POINT HERE) Industry numbers from across the belt shows farms have sold half as much as they had sold a year ago to date. This is not an estimate…this is a fact!
Our one-year memories are signaling to us that we sold too soon last year, and we are not going to make the same mistake this year.
Making multi-year forward sales in 2008 and in 2012 were the right things to do(hindsight is 20/20) and 2022 may get added to that list. If the FED can bring inflation to heal and no black swans land, we will not breakout of the above “third level” and in fact, we may breakdown to $4 dollar support. (Is that in your plan?)
I will leave you with this quote from the Chicago school of economics and 1976 Nobel Prize winner Milton Friedman.
Not sure of everyone’s take on this…but, printing 40% of the circulating supply of money in 24 months is not what I would consider “steady”. Somewhere between 2% and 40% lays the difference between Keynesian and Chicago schools of economics….LOL !
There are a lot of “if’s/and’s/and but’s” in above newsletter…”but” I wanted to draw out both arguments and highlight the risks we all face as an industry.
One of MAC’s goals is to help you be profitable in all economic environments. Managing risk will see us both through to the other side of current market volatility.