GSX Grains Update - Stocks & Prospective Plantings

THIS IS NOT INVESTMENT ADVICE. THESE ARE PERSONAL VIEWS ONLY.

The end of March USDA NASS stocks report and the NASS Prospective Plantings are usually one of the more volatile reports of the year. Stocks, tend to “true up” where the prior years crop production came in and the demand over the crop year so far. The plantings set the benchmark for the all important acreage split and the total size of the acreage pie.

Pre-report estimates with actuals below (from Refinitiv):

The corn and beans numbers were bullish and the market agreed pushing flat prices and spreads higher in both markets. The wheat report was netural to bearish and the market finished flat. The cotton acres (no stocks for cotton) were higher than expected and the market sold off as a consequence.

Without going into a debate on the acreage splits here, I’ll leave that to experts, I will say that the reports confirm that spreads in beans and corn should remain inverted into the end of the crop year. How they behave from new crop onwards will depend on how the growing season pans out and demand in 2H 2023.

Chart wise corn is at a reallly interesting juncture on daily and weekly charts. The daily chart below show trend line resistance coming around 656 base the July Contract. You also have the 100-day SMA targeting the 650 area. So the market will need to chop through that resistance to make significant headway above Friday’s close of 636. On a purely technical basis, you would sell this rally into overhead resistance with a stop (or go long) above a confirmed break above the trend line.

This chart is also in a corrective phase. Prices on Friday closed right on the 2-year (104 week SMA) for the rolling 2nd month contract. A weekly close above this level would add technical support and likely trigger slower moving CTA systems to trim shorts.

For those looking for an analogue chart. Look at corn rolling over after the drought year of 2012. Once through the 2-year SMA ( the blue line) prices never really looked back.

Soybeans has bounced off 2-year resistance and put in v-shaped bounce off lows from a week ago. The strong close on Friday puts prices just shy of the 100-day SMA on the daily chart of the July Contract. The Weekly chart has held the 104-week SMA. Technically, soybeans looks better than corn and in theory should attract more flows in the weeks ahead.

A break above 1500 on the July contract really does open up targets in the high teens. There is much to get excited about for the soybean bulls as we head into planting.

Despite the lack of excitement post report, the wheat chart does look set for further short covering. The daily chart has broken through some resistance levels and come back to test those nicely. The weekly chart has dug itself into a nice wedge pattern. Could be some fireworks here even if it is just following soybeans for the ride.

The cotton charts are hanging in there. Daily chart is trying to hang on to recent gains in the July contract. Technically a move to 90-cents is not out of the question. The weekly chart looks less bearish than a few weeks ago and looks set for retracement back toward 90-92 cents base the N3 contract.

Overall, the ags markets look to be strong (and stronger than I expected) heading into the US planting window which will take us to the end of Q2. The US farmers will be licking their lips with the rally in prices just as input prices start rolling over.

Macro remains hard to read with the QE that is not QE having a QE like impact on asset prices. That can only be good for commodities ceteris paribus. Since the middle of March the crude oil market has caught a bid that has leant support to the broader sector, even if its just short covering at this point. The chart below shows how corn has tended to track oil lower whilst beans has remained supported. If macro commodities catch a bid then corn should benefit from increased flows.

There remains the potential for further “grey swans”, so positions needs to be tightly managed. However, we have a window here for some optimism combined with some clear technical levels, that provide some tactical risk reward opportunities. Best alternatives looks to be in beans if you’re brave and corn spreads. Wheat if you’re keen for more volatility. Good luck.

“There's a point where we just let the music take over everything.”

― Christopher Nolan, Inception: The Shooting Script.

I think Hans just said “I’m not going to fight it, I just bought some July beans..”