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Markets Make Necessary Correction Ahead of Growing Season, Says Analyst

Last week, we talked about a rally buster in late winter, with price breaks in March that wiped out half to two-thirds of the winter rally. However, it was surprising the extent of that winter rally given the high level of grain stocks in most carryout categories. While Argentina had a production problem, Brazil had good weather and an above average crop that made up for part of the Argentine losses. So net we had a surprising winter rally from January to March and a surprising winter break during March.  

Grains started the day yesterday strong, but faded throughout the day while the stock market soared - a familiar relationship over the past few years. Since the lows, CBOT wheat rallied 95¢ from 2/12/17 to 3/2/18, then broke 65¢ to today's price of $4.53 May. Corn gained 40.5¢ from lows 1/12 to highs 3/13, only to drop 20¢ to today price of $3.75 May. Soybeans gained $1.27 from lows 1/12 to the highs 3/13, only to lose back 52¢ to today's $10.30 May price. These are big moves in winter for markets that have plenty of everything.  

It is surprising that we gained so quickly and also lost so quickly. You almost get the feeling that big funds might be pushing the little grain market around a bit, simply because they can. When the growing season starts, maybe we'll have some real changes in fundamentals to deal with. But for now, not much will change until the northern hemisphere crops can get started planting and growing.  

Prospective Acreage, Stock report

We get the annual prospective acreage report this week on Thursday at 11 a.m., and most anticipate a jump in HRS wheat and soybean acreage. In fact, it might already be priced into the market for a fairly substantial rise in acreage of these crops. The reaction to what is likely to be a bearish report for these two grains might be more important than the actual numbers.  

Stocks numbers will also be out, but acreage will get the lions share of attention. The one stocks number that can surprise is corn stocks, with domestic feeding the lions share of corn use, and that is only announced once per quarter indirectly through this stocks report. When stocks are released, whatever wasn't used in exports or ethanol or food use has to be feed, so the number is backed into by whatever is not in the other well know/counted categories. With feed being over 50% of corn use, this is an important demand item for corn. So there could be some surprises in the corn (default) feed usage numbers.  

Weather Forecast

Weather remains rather adverse for the U.S. to begin planting quickly, with precipitation the next seven days forecast above normal in the central and eastern Corn Belt. It also will be above normal in Texas, which will greatly aid that dry state, especially winter wheat areas.  

About the only major production states that will see below normal precip are Kansas, Nebraska, Iowa, South Dakota, and Minnesota for the next seven days. This might be the only area that could actually get some field work done early then, especially in the southwest where its already dry and relatively warm. But warm/dry weather won't be good for Kansas farmers overall, who are already dealing with a wheat drought. Nebraska, Iowa, South Dakota, and Minnesota might get a start with dry weather, but the forecast for cool weather over the Corn Belt also will slow the warming of soils. Even if corn could get planted early, unless the soils warm up, it won't germinate.       

South American weather will remain the same the coming week as the past few months, with above normal temps and below normal precip in Argentina, and below normal temps and above normal precip in Brazil. That will change in the 8-14 day forecast today, with Argentina getting rainfall chances in that period (Brazil remains cool/wet). But harvest is upon us, and wet weather isn't necessarily good at the peak of harvest, even during a drought.   

So the momentum has pushed to the downside, and virtually everyone recognizes that, even the wannabe market analysts and radio commentators. But just like everyone turned bullish at the top, perhaps everyone turning bearish now is a good sign of an intermediate bottom.

Necessary Correction

My personal opinion was that grain prices went up too fast from the January bottoms and were in need of a correction before we actually start the growing season. We really had no need to be more than fractionally higher than the January lows at this time of year. And essentially, after a lot of price movement (first sharply higher, then sharply lower to today), we are basically just fractionally higher than the lows made in December and January.  

Maybe the big funds just had their fun in the grain market the past few months, pushing it around both higher and then lower. Big funds make money on price movements, so the more movement, the more opportunity. There certainly was opportunity this winter, so perhaps the funds are happy.

Now the real serious event starts: the U.S. and northern hemisphere growing season. Now it will become serious business trading the grains, with real possibilities for large fundamental changes in the market. And real changes in projected carryout levels, depending on the growing season. Let the fun begin!

Ray Grabanski can be reached at raygrabanski@progressiveag.com.  
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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years. 

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