July 26, 2021

Commodity Insight: Chinese buying made corn stocks tighter yet

The first column I penned for the month of May was entitled “A bull market always lets you in.” The title comes from an old saying about a bull market. It simply means that when a bull market unfolds, try not to buy strength. Be patient. History shows that more often than not a significant decline will unfold that is totally unexpected and allow patient bulls to probe the long side of the ledger.

The reason I posted that column was clearly stated when I wrote: “As you well know, I have been wildly bullish on grains since last fall, but now pulling my horns in a bit because it is May. I am usually uncomfortable being a bull in May. Some of my reasons for toning down my bullish fervor are based on facts, some on fiction and some on my gut feelings.”

As things turned out, May that just ended was one of the most bearish Mays in history for a host of markets. May, by any measure, was down and dirty and wildly bearish to say the least.

Allow me to look back on the month of May that has finally ended and show specifically how bearish it truly was. From the high to the low in May, here is how badly some markets were slam-dunked.

Corn prices fell $1.34 a bushel, wheat dropped $1.27 and soybeans took a hit to the tune of $1.78. Soybean meal dropped $76 a ton. The grains were simply pounded without mercy.

The grains were not alone flashing bright red ink. Bitcoin fell $29,775, dropping 50% in value. Lumber collapsed to the tune of $532. Silver was off $1.62, milk was hit to the tune of $253, crude oil took a $5.93 per barrel haircut and sugar fell 17 cents. The U.S. dollar fell 193 points, rounding out what was an incredibly negative month.

As you know, the weakness did not surprise me one bit. I wrote in the column above: “An old song from 1966 and performed most notably by Frank Sinatra is entitled ‘That’s Life.’ Here are a few ominous lines from that monster hit tune from years ago: ‘You’re riding high in April, shot down in May. But I know I’m gonna change that tune, when I’m back on top, back on top in June.’”

By the time you read this column, the month of June will have finally arrived and you can judge for yourself if the markets mentioned above are “back on top, back on top in June.”

In the final two trading sessions of May, the last days of this past week actually, grain prices came roaring back with higher prices. But does a few days of sharply higher prices with grains and other beat-up markets offset the bear trend that unfolded in early May?

Will the strength seen at the end of May have the legs to run further in June? Only time will tell.

But again allow me to restate a few ideas I penned in my May 21 column entitled “Waiting patiently for June 15”: Most grain analysts focus on the weather the day before or the day after July 4 to decide whether to be bullish on grains or not. Such an analysis has been accurate from the years 2000 to 2020. However, my work relies on the years 1900 to 2020 and the key date is June 15, not July 4 — any signs of hot and dry weather on June 15 in the Corn Belt is a reliable signal suggesting Mother Nature is poised to cut grain yields and production.”

Here we are now, with grain prices rising sharply in the final days of May, suggesting that June may be bullish. And June may indeed be bullish as I expect it to be.

Then again I am waiting patiently for June 15 to arrive before popping champagne and putting on a party hat. History shows the key to a bull market for grains based on hot and dry weather is the forecast on or about June 15, not early June.

To restate from my May 21 column: “And that is precisely where I stand today when viewing razor-thin stocks of soybeans and corn coupled with robust and insatiable demand from China amid weather issues bubbling up in Brazil and in the United States. But, of course, the date at which I turn quite bullish and decide to press the long side of the grain complex is June 15. I am patiently waiting for that day to roll around before turning even more bullish on grains.”

In my view, the news that sparked higher grain prices this week was China stepping forward and buying more old crop U.S. corn. Before the purchase, corn and soybean ending supplies were razor thin.

This week, China made ending stocks of corn tighter yet. Now, the only shoe left to fall is the weather forecast for the Grain Belt come June 15.

And to track the corn market, and soybeans, go to commodityinsite.com.