- Much of the BRACE Industry is frothing at the mouth in anticipation of USDA's quarterly Grain Stocks and June Acreage update set for release this coming Friday.
- As I talked about last time, this increases the hedging/investing/trading advantage of those who generally ignore made-up government numbers.
- The Important numbers to keep an eye on Friday closing prices of the various new-crop futures contracts for the week and the month.
As expected, there has been a lot of noise made already this week about this coming Friday’s USDA quarterly Grain Stocks report and 2024 Acreage update. As I talked about in this space last time, the more people who listen to all the nonsense being talked about in associate with these made-up numbers, the greater the advantage to hedgers/investors/traders who pay as little attention as possible. If folks don’t know to ignore the BRACE Industry by now, they never will. That being said, there are numbers we need to pay close attention to as the week and month come to an end: Friday’s closing prices for December corn, November soybeans, and the three September wheat contracts. The reality is, nothing else matters. Or as my late friend and longtime CBOT floor reporter Gary Wilhelmi put it, “The only price that matters is the close. That’s why I call that pearl of wisdom the Wilhelmi Element. For those that actually follow the markets, rather than chasing the latest government misinformation, we already know available stocks-to-use (as/u) tightened this past quarter across the board. On the other hand, June 1 as/u was looser than the same quarter last year, all based on National Price Indexes (national average cash prices). As for planted acres, as a farmer friend told me Tuesday, “What’s the big deal? Planted acres don’t have to be reported until July 15”. With that as background, let’s look at some important numbers, prices, as June comes to an end.
Corn: The key to the corn market is not where it closed Monday, or Tuesday, or where contracts are trading Wednesday morning, but where the new-crop December contract (ZCZ24) closes this coming Friday. Everything else is just filler. The key prices to keep an eye on with Dec24 is last Friday’s close of $4.5325 and the contract’s May settlement of $4.67. Dec24 finished Tuesday at $4.43 after posting a low of $4.41. As we come to the end of June, the classic Robert Johnson[i] song “Crossroad” keeps playing in the jukebox[ii] of my mind. King Corn does appear to be at a crossroad from potentially moving into a long-term uptrend or extending the downtrend that has been in place since the end of May 2022. And it all depends on where the contract is priced this coming Friday, the best example of the Wilhelmi Element we’ve seen since – well - last month. Generally speaking, the 6-to-10-day weather forecast could be considered bearish for new-crop corn given much of the US Plains and Midwest is still expected to see above normal precipitation. I know as surely as I’m sitting in Omaha, though, part of the BRACE[iii] Industry will make this out to be bullish.
Soybeans: As for the soybean market Wednesday morning, I know most of the chatter will be about the lame duck July issue[iv] posting a double-digit rally overnight. It could be indicating new sales to China (or its alter-ego unknown destinations), but the reality is the spotlight is squarely on the new-crop November issue (ZSX24). Nov24 gained as much as 8.0 cents overnight but struggled to hold its gains through intermission, after closing 19.0 cents lower Tuesday and 10.5 cents higher Monday. Applying the Wilhelmi Element, what matters is where Nov24 is priced at the end of this coming Friday’s session in relation to last Friday’s settlement of $11.20. A higher weekly close would complete an intermediate-term bullish reversal indicating the contract has moved into a contra-seasonal uptrend. Things could get interesting for the market if that happens. As for the November futures long-term trend, it most likely won’t turn up at the end of June, but the stage could be set for July, an emphasis on the phrase “could be”. It just depends on this week’s close. Fundamentally the new-crop market remains neutral-to-bullish, an important factor that could trigger some noncommercial short position covering in the not-too-distant-future.
Wheat: We can apply the Wilhelmi Element to the wheat sub-sector, but it doesn’t look to carry the same weight as what could play out in new-crop corn and soybeans. Recall from Tuesday’s close, the commercial side provided late support to the Kansas City (HRW) market despite the 2024 harvest continuing to roll along. This helped spark an overnight rally as the September issue (KEU24) gained as much as 5.75 cents but was also fighting to stay in the green at intermission. While I’ll be keeping an eye on this Friday’s close as we make our way toward the end of the week and month, here the spotlight will continue to be on basis and futures spreads. If the commercial side is starting to provide support, noncommercial traders are likely to follow. This past week has seen the latter group increasing their net-short futures positions in winter wheat, most likely, opening the door a bit wider to a short covering rally. It’s a similar situation with September Chicago (ZWU24), though the September-December futures spread was closer to the bearish threshold of 67% calculated full commercial carry than its Kansas City counterpart at Tuesday’s close. Additionally, while the September KC issue was within sight of the previous Friday’s settlement of $5.87, the same contract in Chicago was sitting roughly 14.0 cents below its close from last week. Still, it’s wheat, so 14 cents isn’t much in the grand scheme of things.
[i] He of the “sold his soul to the devil” legend.
[ii] There are some who may have to Google what I mean by this.
[iii] BRACE = Brokers/Reporters/Analysts/Commentators/Economists. While not all in those professions fall into this group, a large percentage do. There are two telltale signs: 1) Regurgitating any and all USDA numbers as gospel and 2) Ignoring reality so everything is always bullish.
[iv] That time between July option expiration last Friday and first-notice day this coming Friday.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
