No need for livestock feeders to be aggressive buyers at this point in time.
By Richard Brock, Brock Associates
It’s happened many times in the past in the corn and soybean markets. The 4th of July has frequently marked the end of a long-term rally or the end of a long-term bear market. The latter is obviously not going to be the case this year. As this is written, corn and soybeans have already entered a weather market. Extreme heat in the last week, however, has so far, been beneficial for both late planted corn and soybean crops to catch up. At this stage it’s not detrimental to yields. However, if extreme heat without rain continues for another two weeks, then it will become a much more serious matter. So far this marketing year, the high in the cash corn market was in May. A May top has happened on only four other occasions in central Illinois since 1970. But as the two charts below indicate, the odds of a seasonal top increase dramatically from June onward. In the case of soybeans, the high so far this marketing year was made in early June, something that has occurred 14% of the time since 1970. Our thoughts are that the high for the marketing year is already in. Oilseeds Lead the Way The bull market of the last two years in the soybean complex has been led primarily by worldwide vegetable oil shortages. However, that trend has changed. As this is written, palm oil, canola oil and soybean oil are all making new multi-month lows. The result of declining worldwide demand as a consequence of higher prices? Possibly a worldwide recession coming? Who knows, but the trend speaks for itself and is an indication that this long-term bull market is over. Being bullish in a weather market after a two-year bull market could very well turn out to be a very expensive proposition. It’s easy to argue the bullish side in a weather market. Weather markets peak early and have a long tail. The news is easily seen and quickly discounted. July weather is going to be much more significant than what is occurring right now. The question is, does the market have a shortage of $6.00 corn or $7.50 corn? Our guess is $6.00. We will not run out of the $7.50 variety. In the case of beans, we do not believe the market is going to have a shortage of $17.00 beans. The shortage is of the $14.50 variety. No need for livestock feeders to be aggressive buyers at this point in time.
