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Corn Set To Rebound
By: Barchart | March 18, 2023

And let the games begin on the way to the Final Four. Enid Brewing Company has all your basketball streaming on our 10 TVs with a full food and drink menu for all ages and so come on down! We certainly need something to distract us from all the market noise, which was heightened to extremes this week.

The banking failure starting with SVB last week has spread to several others. The Fed and FDIC announced back stops to protect deposits above the FDIC limits to avoid contagion. Wall Street banks agreed to deposit $30 billion in First Republic Bank for at least 120 days to stabilize what could have been or could be the next to fall.

It was a turbulent week that saw confidence swing wildly with each announcement. Markets rallied on news of government intervention that was quickly followed by oscillating concern that this isolated event could spread and impact other banks. While I feel somewhat confident that the worst is behind us, markets are on edge from the unknowns ahead. The ECB raised interest rates in Europe by 50 basis points despite the concerns. It is now expected that the Fed will raise rates by 25 basis points despite the recent instability to keep ahead of the inflation fight.

February’s CPI was released this week and came in line with expectations at a 0.4 percent increase and 6.0 percent above last year. The recent weakness in energy markets has helped moderate inflation although “shelter” costs continue to push upward. Crude oil plummeted this week trading a high-low range of $12.30 per barrel trading down to levels not seen since December 2021. While I believe this weakness in the energy complex is overdone right ahead of summer, the macro headlines have dominated trader attitudes.

It was this time last year that oil surged over $100 as Russia cut supplies to the West after its invasion of the Ukraine and the sanctions that followed. Price caps on Russian crude are beginning to have the intended effect impacting foreign currency earnings that dropped by $2.7 billion from January to February. Lower oil prices will also have an impact that may require Russia to pump more oil to make up the difference.

As we covered last week, the most anticipation was the renewal of the Black Sea grain export corridor that was set to expire on Saturday, March 18th. As of the time of this writing, no extension had been agreed. Russia made it’s demands for reduced sanctions to aid the export of Russian wheat in exchange for a renewal for Ukrainian exports. Earlier in the week, Russia proposed a 60-day extension that was rejected by Ukraine who asked for a 120-day extension. On Friday, this was rejected by Russia who said they held firm with the 60-day extension.

Wheat prices rallied Friday to the highest level since March 3rd closing above the 20-day moving average. Uncertainty for Black Sea exports were indeed part of the reason, but dry weather in the US winter wheat belt continues to stress conditions the crop emerging from dormancy and approaching first hollow stem.

Good-to-Excellent ratings dropped nine percentage points in Oklahoma this past week dropping back to 30 percent while 44 percent was rated Poor-to-Very Poor. Winter wheat jointing is now 12 percent, which is two percentage points ahead of normal. Kansas and Texas crops remained steady both at only 17 percent G/E, but over 50 percent P/VP. If July KC wheat can make a high above the March 3rd high at $8.39 ½, I believe we will see further continuation higher to at least the 50-day moving average at around $8.50. If wheat demand re-emerges with a cheaper US dollar recently and disruptions to Black Sea exports while seeing continued dryness in the US plains, I think we could be back to $8.80 in short order.

With China taking a much more active role in trying to negotiate a political settlement between Russia and the Ukraine starting with the grain deal, it is somewhat telling to see them purchasing large amounts of US corn this week reaching 2.1 million metric tons. China has also been a strong buyer of Brazilian safrinha corn recently.

President Xi will travel next week to Russia to meet with President Putin. It seems that something could be in the works that could see high stakes negotiations where China plays an important role that Russia will agree to. Ukraine is a large corn exporter generally and to China specifically. With China purchases of US and Brazilian corn ahead of this meeting, it could be an active week ahead for the grain markets especially wheat and corn.

With heavy snowfall this winter in the US Midwest, I anyway believe the selloff in corn was too early to price in ideal planting timing and weather. Argentine soybeans and corn crop forecasts continue to decline. All this leads me to suggest that cattle feeders should cover more of their corn needs here. The March 31st planting intensions report is coming up and will move markets. We will have to see how spring weather and planting pace emerges to gauge directional bias from there.

Friday marked the release of USDA’s monthly Cattle-on-Feed report. March 1st on-feed was as expected at 95.5 percent of last year, but came in at a 6-year low. February placements were lower than expected at 92.8 percent versus the call for 94.0 percent average trade guess. February marketings were lower then expected at 95.1 percent versus 95.6 percent. Overall, I would say this report has a bullish bias despite the lower marketings.

The macro news and uncertainties hit the cattle market hard this week as I forecast in last week’s article. There could be more weakness in feeder cattle futures if economic concerns persist into next week and corn strengthens. Friday was an inside day on feeder cattle charts. Monday’s direction should see movement in that direction on Tuesday. If we break lower, April feeders could trade $3.00 lower.

Fat cattle contracts had a difficult time this week. Cash trade was light and macro forces led to long liquidation. However, higher corn could and should lead to higher live cattle contracts. With slaughter numbers down, I think we could see some firmness return to these bids. A rebound in market confidence will be important to get the cattle complex back on the uptrend.

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