Oil Near $100 and Markets Walking a Tightrope

The corn, bean and wheat markets were relatively calm today considering another sharp rally in crude prices with modest gains in all but old crop beans. Old crop beans and bean oil continue to trade on rumors out of Washington that the EPA RVO and RIN mandates being discussed and finalized with President Trump’s staff are larger than expected and will be announced before April. The markets did follow crude oil early as it jumped 7% on threats from Iran’s new leader that the Straits of Hormuz will remain closed indefinitely as leverage against surrendering to the US and Israel’s demands. The markets will not be able to divorce themselves from the rhetoric on both sides as was shown today with another day of significant losses in the world's equity markets on the threats of much higher oil prices pushing the world economy into a recession. Traders will have their eyes on Iran and the Straits heading into and through the weekend, and each market will react to the daily news until the Straits re-open.

News and Notes:

• There remain no weather issues to overshadow the crude oil market, and there is little in the 10-14-day forecasts in the US, SA or the world that could develop into a problem. There are forecasts that the weak La Nina/El Nino that has been in place for the last year, will develop into a stronger La Nina for the US growing season, which would hint at more heat than the previous few years. Time will tell, but long-term weather models have a terrible track record over the past few years.
• The December corn daily chart is on Page 2 and shows today’s attempt at the $5 barrier again today before profit taking and farmer selling capped the early rally. The “Iran” trade in corn is obvious from the rally over the last week, but a new higher plateau could easily form if crude prices stay elevated for several more weeks. The technical moving support is obvious from $4.60 to $4.63 as are the breakout points from earlier this week. A re-opening of the Straits sends Dec corn futures back to the comfortable $4.60-$4.70 range which should hold until more is known about US planted corn acreage intentions on March 31st and then early planting weather.
• Mexico continues to be a strong weekly importer of US corn while the weekly export totals were solid for corn, but mediocre for beans and wheat as world cash prices have not rallied like the futures markets chasing rising energy prices.
• Unofficial reports showed that this year’s US farm pre-pay season results were down 20-25% , which should show up in the final planted acreage numbers if fertilizer prices continue to rise. The rally in nitrogen prices since the war began adds about $15 to $17 an acre for corn which could push even more than the expected 4-5 MA switch from corn to beans. Rising fertilizer prices are a problem for all Northern Hemisphere farmers and with the US and China acutely sensitive to the price increases.
• Please continue to add to old and new crop sales on rallies in the coming day and make sure you have your sales orders in with buyers. The trend has been highs during the overnight or early morning sessions followed by selloffs into the close. The ridiculous intra-session volatility is largely driven by the 8 ½ hour (yes there is a ½ hour time zone) between Iran and the US central time zone. Any overnight events in Iran are occurring after the US Day session closes at 1:20 central, and the overnight session opens at 7 central. Have your orders in because you will not be able to get a call answered after hours to sell a spike rally. Be prepared for the volatility and even put in a few small “out of reach” sales targets for the extreme events.

Today’s price action in just the corn, bean and wheat markets makes it look like the trade is digesting higher fuel costs and are comfortable that futures prices are in a good position for $90-$95 oil. Just using the price levels where corn started from before the war, corn has 20-25-cents of downside on a re-opening of the Straits, while beans are harder to figure as the strength in the complex has been an equal part of surging oil prices and a potentially over-optimistic attitude toward the upcoming EPA announcement. Continue to be prepared with working orders and do not get scared out of making a solid sales decision because prices may go higher.