WHY SOME GRAIN PRICES HAVE SOARED AND OTHERS COLLAPSED: WHAT IS INFLUENCING CORN, SOYBEANS, WHEAT, AND CANOLA PRICES?
JULY 12th, 2021
While some of you are asking about the coffee, cocoa, even sugar and natural gas markets, the weather is having its biggest influence right now in grains with major moves and many of them hopefully profitable, if you heeded my advice the last few weeks. Here is how the weather is affecting grain markets, what may be ahead, and a brief comment about some other commodities.
My next report before or by Thursday will have my Best Weather Spider market sentiment, an update for late summer corn and soybean weather and, most likely, a new video.
IN THIS REPORT:
Cooler Midwest Weather and rains creates major sell-off in corn and soybeans last week
a look at soaring PRICES: spring wheat and canola vs. corn
WHY HAVE OTHER WHEAT PRICES NOT FOLLOWED SUIT by rallying?
HOW I FORECASTED THE RETURN OF THE CANADIAN DROUGHT AND EASING OF SOME KEY MIDWEST CORN BELT DRYNESS
WHAT THE CORN AND SOYBEAN MARKET WILL BE WATCHING: HOW TO TRADE THIS
NATURAL GAS WEATHER AND MARKET COMMENT: STILL POTENTIALLY BULLISH DEEPER INTO SUMMER
FACTORS AFFECTING COFFEE PRICES: still some potential bullish longer term fundamentals
HOW DO OCEAN TEMPERATURES NEED TO CHANGE TO INSPIRE A WEATHER RELATED PRODUCTION PROBLEM FOR COCOA?
Improved Midwest rains for Corn and Soybeans creates major sell-off last week
The two maps below show the extent of the drought in the NW corn belt, spring wheat areas, and canola regions, which are located mostly in Canada.
So why have corn prices collapsed again on my recommendation given the drought areas you see over parts of Iowa, Minnesota and the NW belt? The reasons are the cooler Midwest weather during pollination and the fact there has been enough rain around to prevent any major crop damage to corn, except in the smaller producing areas of North and South Dakota.
It has really been spring wheat and especially Canola prices which have soared.
More spring wheat and canola is grown in Canada then corn and soybeans, of course, heat and dryness have been much more prevalent there and in North and South Dakota. The result has been this huge move up in canola prices and spring wheat rallying against corn.
SPRING WHEAT VS CORN
Some of you may have caught this major move up the last few days in canola. Make sure you put some stops in and it is always OK to book some partial profits, but I am still bullish on the droughts
WHY HAVE OTHER WHEAT PRICES NOT REACTED HIGHER?
Global wheat crops in other parts of the world such as the U.S., Europe, and Ukraine have improved their condition in the last 3 months. While prices may be oversold for the KC and CBOT markets, it is really only the spring wheat areas in Russia, the U.S., and Canada that are having crop problems.
Hence, wheat has bullish potential once again, even though I did mention taking some profits a week ago. Some of you have read between the lines of my reports and can see that overall it has been this market and canola that I have been bullish on. There are not commodity ETFs for conservative traders in these two markets.
HOW I FORECASTED THE RETURN OF CANADA’s DROUGHT AND EASING OF SOME KEY MIDWEST CORN BELT DRYNESS
While a bit hard to read I use teleconnections more than standard forecast models. I look at ocean temperatures and other global climatic features to forecast the position of ridges of hot, dry weather, or troughs of cool, wetter weather. Notice how models had this huge hot dome over the NW corn belt a couple weeks ago but most firms and forecasters were wrong building this HYPE up over the Midwest corn and soybean areas.
If you did not read my report last Thursday and buy canola, I would not advise it now on such a rally, but it is this and spring wheat that persist and remain most bullish on the weather. Some of you emailed me that you bought canola futures. You may be ahead quite a bit right now as we are near limit-up, again, on Monday–make sure you use trailing “GTC” stops. Currently, I see no relief from the drought in Canada.
what the corn and soybean market is watching
We have seen some short covering in corn and soybeans, following my comments a week ago Friday and last Monday, that I thought the Midwest weather would turn bearish corn and soybeans and a change in my bullish weather spider to bearish again.
The reasons for the minor short-covering early on Monday are:
- The USDA crop production report today. However, typically it is the August and September crop reports that are most important and I am not sure what the USDA might do today;
- Some feel this afternoon’s weekly crop progress report may show more deteioration in Midwest crops;
- Some hints of hotter, drier weather in about 2 weeks in parts of the main corn-belt regions returning.
The rainfall map above for this last week shows improved weather over most of central Iowa and eastern Nebraska with rains and a needed drier break in the central and eastern belt where it has been too wet. Hence, I think it is possible we may see a slight improvement (not major) in corn and soybean crop ratings today. Consequently, with more rains in the forecast Wednesday over the drier northern Iowa and Minnesota regions, this is one reason why corn and soybeans have NOT staged a much bigger rally.
The map above shows 25-50% of normal rainfall over the corn belt deeper into July. But firms like Ag Resouces, and others, have been touting this for weeks as a bullish reason for corn and soybeans. In my opinion and my advice recently, “not so”; I have been bearish as the dryness was only affecting a small portion of the corn belt and Chinese corn acreage is expanding.
However, deeper into July there may be some validity to this, finally. Will there be a major rally in corn and beans on this dryness? Stay tuned for a mid-late week update. Right now, with more mid-week rains in the forecast, I do not want to get super bullish corn and soybeans yet.
after some big profitable trade recommendations in corn and soybeans, what’s next?
In my opinion, the easy money has been made short corn and soybeans. I do not like selling into a market after everyone that was long is now forced out and when rains and cooler corn belt weather has already been built into the market.
While the weather coming up Midwest this week is still slightly bearish corn and beans again, there is potential deeper into July for some heat and dryness to return to portions of the western and northern corn and soybean belt.
I want to study the situation a bit more before lending any sort of bullish reversal in my view. However, the safe thing to do (if you have profits in corn and soybeans right now from the short side) is to take them and wait. It will be a tug-of-war between a) the longer-term, potentially drier and hotter NW corn belt maps, versus b) important rains again on Wednesday.
I think it is possible (first) if we see a modest rally in corn and soybeans later today or tomorrow on today’s USDA crop report or some longer term maps looking hotter and drier, that corn and soybeans will sell off ahead of Wednesday’s potentially important rain event for Iowa and Minnesota.
natural gas weather and market comment update
I mentioned early last Thursday that the EIA might be bullish last week and that longer term, I saw some heat for the eastern U.S. This, plus the extreme drought and hydro power concerns rallied natural gas prices about 10-15 cents, following my early a.m. comments last Thursday.
So why have prices sold off again? The map below shows how the Midwest, deep south, and east, cooled off a bit last week (blue). This created market volatility in natural gas. For those of you that are bullish prices, this week’s EIA should NOT be as friendly as last week, given some cooler weather. You can also see that the Midwest and Deep South are cooler than normal for the next week.
The cooler weather you see here above (blue) for the next week, over the Midwest and deep South have caused some profit taking in natural gas, as well as the top map above showing the normal-to-cooler weather in some key areas last week, which may result in a more neutral to bearish EIA on Thursday.
Notice the warmer than normal weather, deeper into July, in some key natural gas consuming areas in the east and out west and Midwest. This should prevent any major 20-30 cent sell-off in natural gas prices. Hence, while not extreme eastern heat yet, I still like the ETF BOIL longer term. My bias, heading deeper into summer, is to use sel- offs to buy breaks.
ANY HOPE FOR COFFEE PRICES TO RALLY BACK?
Once again, it is important in trading commodities to be “nimble”, look at the charts for risk management, take some profits when you have them, and to be conservative when we see such precipitous moves up in down in a market. One such case is, of course, in coffee.
Coffee is a market that has a lot of seasonality in it and when speculators are heavily long or short in one direction, is often subject to major profit-taking and washouts. We need some NEW bullish fundamentals. The drought in Brazil is old news “unless it returns for the main bloom time of the year from September to December.”
However, enough of the bullish traders have been forced out now that the lower 2021 Brazil crop, potential for dryness deeper into the year for Brazil and wet weather delaying the harvest in Central America may keep this market from falling a lot more.
Notice that some rains are forecasted for Brazil’s coffee areas in about 10-15 days, but it is not enough to relieve the drought and the weather will not be that much of a factor till September or October unless there is a freeze scare the next few weeks.
There is not a frost scare for coffee and another reason for the sell-off. Notice in the upper left, the heavy rains slated for Central America for the next 2 weeks. I am not sure if this will be a market factor, but it could be soon –some late-season harvest delays for the Arabica crop from too wet in Central America.
I still like the conservative long position in coffee by being short September and November put options. Also, a partial long position in the ETF JO, after taking profits a month or more ago on the rally when coffee was above $1.60
COCOA PRICES SEE WEAK RALLY BACK. WHAT WILL IT TAKE TO SEE A MAJOR BULL MARKET ON WEATHER?
Cocoa prices have rallied back after a major sell-off on poor global demand and good world production. This is what ocean temperatures have to do in order to see lower production in the months ahead. With the chance a weak La Niña may form again, towards winter, I cannot get bullish cocoa, other than some short-covering on other factors, from time to time.
Cocoa prices have been oversold and subject to a rally. We have seen a major $5,000 contract sell off the last few months on good global crops. My bias is still to sell rallies in this market.
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