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Looking at Corn’s Recent Selloff; Soybeans in a Weather Market

The commodity markets recently saw a big selloff in corn contracts. Hedge funds, retirement funds, and other institutional investors sold off 75,000 contracts. Joe Vaclavik, president of Standard Grain, says the selloff volume was a little surprising.

“I was surprised by it. I was surprised by the volume at which they liquidated and the number of contracts that got liquidated. I guess I was probably more surprised that the market has actually held up fairly well in my opinion. I mean, corn’s still six-and-a-half bucks on the board, and cash corn is a heck of a lot better than that in a lot of areas of the country. So, even though you’ve got some fund liquidation and that the commodity complex – and when I say the commodity complex, I mean grains, energies, precious metals – a lot of this stuff has been soft. I’m impressed with how the corn markets held together, all things considered.”

He talks about why the funds seem to be getting out of commodities.

“You look at energies, you look at grains, the trend, arguably, in grains has been lower. It’s certainly been lower in wheat, probably lower in corn. Soybeans are a little bit different story, but I just don’t think you have that speculative interest that you had the first half of the year. The second half of the year is much different because I think we’re on the backside of inflation, at least for the time being. The inflation prints have been lower every single month since June, so it’s reduced the enthusiasm for the long side of the market.”

The big selloff in corn shouldn’t have a big effect on farmers who still have some corn to sell.

“If you still have 2022 bushels to sell, did you nail the high? No, but if you still got a good basis, even if you don’t, I mean the basis overall around the country is still historically pretty good in most areas. There’s still a lot of profitability associated with current prices, so this is not a problem. Is it a problem that you didn’t sell when corn is seven and a half on the board? I mean, yeah, you’re never going to nail the high, but these are still good prices associated with a lot of profitability. I don’t see this as being a big issue. It’s just a question if you want to carry into next year, how much risk do you want to take in the next year given all the talk about recession, all the talk about China locking down again potentially? There are so many variables, but there’s a lot of profitability still associated with these prices.”

In other commodity news, Vaclavik says soybeans are in a weather market.

“I think the beans can be influenced pretty heavily by the weather. Argentina has got some problems, and southern Brazil has some problems. The majority of Brazil is in good shape, so it’s variable. The bean market has acted as if this is a bullish deal because when you go to a situation where you’re talking 200 million metric tons of soybeans between Brazil and Argentina combined, and then, you take that down to like 190, that’s probably what the markets trading now, or somewhere around there. You got to account for that in the marketplace, and I think the market did that, to some extent.”

There isn’t a lot of fresh news in the wheat market right now either according to Vaclavik.

“The Black Sea deal is what drove this thing for the first 9-10 months of the year. And since then, you haven’t seen the bullish headlines. You don’t have a bullish Black Sea headline. Wheat may still very well be overpriced. There’s some stuff going on with Russia and Ukraine. The U.S. may be sending Patriot Missile Defenses to Ukraine, coupled with Russian officials talking nuclear again, but the market doesn’t read this as being a threat or an escalation just yet, but it’s possible.”

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