Turner's Take Ag Marketing | Fund Corn Net Long Position Lower Than Expected

By: Craig Turner, Senior Risk Management Consultant

Mon, 06 Jun 2022, 14:35

Turner's Take Ag Marketing

Craig Turner

Senior Risk Management Consultant

Turner's Take Podcast

CORN | According to the Friday COT report, funds have a smaller net long corn position now than they did at the same point next year. Corn has lower acres, later planting, and arguably more yield risk than last year. The Russia/Ukraine war and Black Sea exports were not an issue last year either. The point is if weather gets hot and dry in N. America and the Russian/Ukraine war rages on with no good solution for Black Sea exports, the funds have room to add onto positions. New crop is $7.00 and old crop is $7.35.

A few thoughts

The market will be very sensitive to weather rallies in June/July
My gut feeling is the Black Sea export corridor does not happen
High prices will bring out acres and price rationing for next year’s crop (2023/24)
The 2022/23 carryout may still be tight

Many end users are low on coverage as they hand to mouth. Many farmers are undersold. I think the risk is to the upside and this idea works for both producers and consumers.

Buy the $7.50/$8.50 Dec corn call spread and sell the $6.00/$5.50 put spread. This spread is trading around 15 cents

Producers: This is a spread you can sell into during a summer rally. There is risk between $6 and $5.50 were you buy back sales on the board. If we rally to the old highs, you can sell your corn and still have a $1.00 upside

Consumers: This is to protect against higher prices for grain you have not purchased. The risk for the next month or two is to the upside. If prices go higher, you have a hedge against buying inputs. If the market comes down, you can make cash purchase lower this fall during harvest.

Canola & Soybean Oil

Global vegetable cash prices continue to be strong while futures prices have weakened. EU rapeseed is trading over $1.00/lb while US soybean oil basis in the US can range 5 to 10 cents over spot CBOT futures. Oilseed margins are profitable and vegetable oil demand for renewable biodiesel is expected to expand in the second half of 2022 and again in 2023. Long term the USDA sees canola crush capacity increasing from 11 MMTs in 2021 to over 17 MMTs by 2025.

The EPA finally released their 2020-2022 biofuel mandates and the 2022 requirements were slightly below the December proposal at 20.63 billion gallons. The EPA also rejected all oil refiner waivers to be exempt from the biofuel blending requirements. This decision should be viewed as supportive for soybean and canola oil prices. The current US administration is expected to continually feature renewable biodiesel as part of their green energy agenda. Soybean crush capacity could increase by 400 to 500 million bushels over the next few years as new processing plants come online.

Canola stocks are projected to be tight again in the 2022/23 marketing year but with much less price export price rationing. For 2021/22 canola exports dropped 6 to 7 million tonnes. With over 20 million acres and current yield projections, exports will only need to be rationed by about 1 million tonnes. Once the trade is confident in new crop production the risk is to the downside as the need to reduce exports for the next marketing year will greatly decline. Our supply & demand models for 2023/24 suggest a return to adequate or burdensome supply in the canola market and relatively “normal” pricing.

Wheat | New crop hard red winter (KC) wheat traded over $13.70 on May 17^th on the news that India will be limiting wheat exports. The ensuing news of Russia considering a grain export corridor out of Ukraine sent wheat lower by $2.50 over a two-week period.

Grain and oilseed priced tend to be determined by the major exporter ending stock/usage and the US stock/usage ratios. Major exports supplies determine global prices on the export market, while the US is the world’s residual supplier of corn, wheat, and soybeans. The addition (and subtraction) of grain and oilseeds export stocks out of the Black Sea may cause dramatic price moves. All eyes will be on Russia and NATO during their talks on June 8^th concerning a grain export corridor.

Spring Wheat planting delays in ND and MN may lead to lower HRS acres. It is possible US acres could be under 10 million. Even with a trend line yield 2022/23 ending stocks/usage could be close to 20%, and amazing turn of events considering HRS stocks/usage was 50% back in 2019/20. Moral of the story is wheat will continue to be volatile during the summer growing season and very fluid Black Sea export situation.

Craig Turner
800.958.9470 Toll-Free
312.706.7610 Local
312.706.7510 Fax
craig.turner@stonex.com
@Turners_Take

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