Volatility climbing with markets
Corn has flashed a warning signal this week, with our limit down move Tuesday followed by huge volatility in the markets Wednesday. Dec corn has run to new highs before breaking down and dropping lower for the week-a potential downside weekly reversal on Dec corn charts.
However, the wheat and soybeans do not have negative technical formations this week. So, there is still not any conclusive evidence that funds are tired of owning grains. After all, they made over 1.5 billion dollars last week on long grain positions (1 billion bu wheat x $.80/bu, 1 billion bu soybeans x 23c, 2.5 billion bu corn x 22c). Funds basically own the grain markets now, and it appears they will decide when prices are high enough to solve our grain shortage. Until they do, it's not likely grain markets will top.
This week's weather has been mostly favorable for the US crop, with warm/dry weather in the soggy western corn belt allowing excess water to run off of many areas. The parched eastern Corn Belt and southeast US got their first widespread precip of the month earlier this week, and are forecast to get more in the next 5 days. Will this signal a change in the weather pattern? Or just a rain event in what will otherwise be a dry summer? Until things change, though, we've got a weather pattern that has not produced normal precip in the central and eastern corn belt in weeks, which is worrisome as we enter the most important time period for summer growth.
Some of the questions posed in the above paragraph won't be answered for at least a few days, but so far one has to be impressed with the volatility in the marketplace. An 80c move higher in wheat last week was followed by huge gains Monday, huge losses Tuesday, and huge gains again Wednesday that have to have everyone pretty nervous about what will happen next. Market tops sometimes look like these types of markets, and now its not only corn that is expensive. While corn was $4+ in March, wheat was only $4.50-$5 while soybeans were in the low $7's. Now we have $4+ corn, $6+ wheat, and nearly $9 soybeans so this is a point where not only corn could top, but also wheat and soybeans (which basically means about every other grain as well).
World markets are very concerned about shortages developing, especially with an ongoing drought in Russia. Ukrainian crops are getting cooler/wetter weather this week, joining China in a much improved weather pattern over the past week (China northern crop areas has been seeing more rain/cooler weather the past 2 weeks.). This may help to slow the market rally, but make no mistake, the market is surely heated up now.
While there is much talk about a US drought, the fact is that US crops are still average for corn and soybeans (although yield potential dropped sharply last week), and wheat crops are still rated very high relative to historic standards. While news stories continue to report terrible US wheat growing conditions and sensational stories about poor winter wheat crops, so far crop conditions don't reflect this disaster that everyone is talking about. It seems odd given the rate of knowledge transfer these days that crop conditions aren't reflecting greater declines. Primary winter wheat areas (OK, KS, MO) that were froze Easter weekend have the poorest ratings, and also have the most horror stories about bad wheat crops. But many northern and western winter wheat producers have good ratings, and they apparently have an outstanding crop, its just going to take a while to sort out just now many bushels they'll have to sell.