The grain market has been influenced by a variety of factors in the last few months ranging from previous China Covid lockdowns (bearish), poor demand for corn and wheat (bearish), big Australian wheat crops hitting the market (bearish), a potential huge Brazilian soybean and corn crop (bearish) vs the expanding Argentina La Nina type drought (potentially bullish later).
Corn pollination begins in Argentina in the next few weeks and there is little hope of any major relief. I think the Argentina corn crop will eventually fall below 50 MMT.
Till now, corn and wheat traders have basically “yawned” at the expanding Plains drought for wheat (the worst early planted crop in about 20 years from Kansas to Texas) and the drought in Argentina. Why? A couple of reasons 1) The demand side of the equation has been poor; 2) Wheat has 9 lives and commercial grain companies will not panic unless La Nina continues next spring and timely rains do not fall in the important April-May time period.
The one big winner in the grain sector lately has been soybeans. Look at the seasonal of long soybean meal in December that has worked in 13 of the last 15 years and how prices previously skyrocketed.
Source: Moore Financial Research
Source: Stormvista models and Weather Bell
With respect to the corn market, again, I expect that prices may bottom soon due to this extreme heat, and La Nina is still alive and well.
But what about next spring and summer? In 75% of the cases since 1950 when La Nina eased and transitioned to a neutral climatic shift, corn and soybean crops were above trend-line. This would be a long-term bearish signal later next year, in which a 15-30% drop in grain prices would occur from whatever highs we make this winter.
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