Daily comment for Thursday June 18

A pullback today after what has been a positive week for our markets.

In what was a quiet session, prices traded in relatively narrow ranges likely waiting for more information to trade on including the June 30 Stocks and Acreage report, US/Iran developments, and further signs of export interest from China.

More flash sales announced this morning with beans sold to both China and Unknown, and a sizeable meal sale to Mexico.

The recently signed Memorandum of Understanding signed by both the US and Iran was seen as bearish news for crude oil based on the reopening of the Strait of Hormuz, and this gave the stock market another boost. The weaker crude didn't help our markets at all, and even though crude oil cut early losses significantly, its comeback failed to spark much buying of grains.

Late news after the grains close reported that Netanyahu says Israel will not withdraw their troops from Lebanon. There has been increased friction between the US and Israel, and despite the recently signed MOA between US and Iran, a path to peace still appears rocky at best.

The war between Ukraine and Russia seems to be heating up with increased bombing by both countries. According to some reports, Ukraine has caused significant damage to Moscow and other Russian cities, and fuel and food shortages are becoming more widespread in Russia.

On the other hand, Russia has increased its attacks on Ukraine's Black Sea region, and our thinking is that this increased turmoil is likely to cause increased concern regarding both countries ability to harvest and export ag production.

Crude oil sank to losses over $3 for much of the day but recovered to near unchanged late in the day. Stocks were sharply higher.

More late news from about an hour after the grain close:

BREAKING: Iran warns of cancelling all upcoming negotiations, re-imposing the full Hormuz blockade and responding with missiles over the direct violation of the US-Iran MOU's first clause, with Israel continuing military aggressions in southern Lebanon, including last night, despite explicit commitment from the first clause to end the war and guarantee Lebanese sovereignty, per Tasnim. Iran explicitly rejects any "theater from Trump" about Netanyahu being rogue, and now Friday's Geneva meeting to launch the first round of 30-day technical talks between Vance and Ghalibaf is on hold over the violation, as no trip has been confirmed or scheduled just 24 hours after the MOU was electronically signed.

Key Points/Developments

Technicals: Resistance continues to hold in the 422-424 area, and support exists at today's low of 415 and remains at 411and 405.

After July soybeans powered through our 1120 resistance two days ago, that area is now support, with more support at 1108-1110. Resistance is seen at 1135 and remains at 1147 and 1158.

Spreads: The July/November carry has had trouble getting going even with the Chinese purchases due to the majority of sales coming in new crop. Historically, however, old crop leads the way still even with a new crop buying program. It closed today st 20 cents and Its recent low is near 21.

The July/Dec corn spread made a new low at 29 1/2 yesterday and continued to firm today, closing at 26 1/2. This level represents a good limited risk buy in our opinion, because that inter-crop year spread very rarely trades this wide. There are two potential bullish items that could tighten it in our opinion--very strong farmer holding at these very low prices, and the possibility that China finally steps in and makes some corn purchases.

Weather: TStorm left both corn and soybeans at Slightly Favorable today, with winter wheat held at Neutral.

The jet stream (main storm track) remains near the central U.S. over the next 10 to 14 days, which will cause waves of energy and cool fronts to trigger t-storms and keep a wide area cool. Although hints of a warmer to much-warmer period exist around June 30, any warming is likely to evaporate wet soil moisture and / or interact with the jet stream to trigger cooling t-storms; seasonable or cool weather is most probable more than 10 days out. Beyond some rain around today and tomorrow, organized rains will be Sat.-Sun. when a strong system passes, and then at times continuing around 5 days later when the next system arrives.

The extended 30 day forecast was released today and TStorm had this to say about it:

A moderate to strong El Niño is developing. The direct effect of these types of El Niños on U.S. weather are in winter (Dec.-Feb.). This winter, it is very likely for key HRW wheat and cattle in the heart of the Plains to be wet or snowy with above-normal precipitation, and likely for the Corn Belt to be mild and near- or wetter-than-normal (not dry). Otherwise, June in the Corn Belt is likely to be considerably wetter and slightly cooler than normal for the 5th time since 1971; none of the July-Augusts that followed were hot, rainfall was mixed, and U.S. corn and soybean yields were mostly (but not always) near- or above-trend.

Markets/Trading Implications

Despite today's pullback, we ended with some gains on the week (July corn up 4 3/4, July beans up 9, and July Chicago wheat up 21 1/4). Huge uncertainty remains in our markets due to the calendar and weather, the ongoing China uncertainty, and two impactful wars continuing in varying degrees. Despite all of this uncertainty, very little risk premium exists in our markets and for that reason we feel downside risk in the short to intermediate term is minimal.

Static Notes

• The Commitment of Traders report for trading through Tuesday, June 2 showed actively traded funds sold a net 90k corn contracts, taking net longs down to 115k. They sold 34k soybeans, bringing net longs down to 156k, and sold 39k Chicago wheat, pushing net shorts up to 58k.
  In the corresponding week of price activity, July corn lost 18 cents, July beans lost 21 cents, and Chicago wheat lost 33 cents. In the three days since this report, corn lost another 23 cents, soybeans lost another 44 cents, and Chicago wheat lost another 23 cents. This all suggests that funds are likely near flat in corn, which is pretty remarkable considering where they were just a handful of weeks ago.

Have a nice evening!

Clayton and Taylor

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