This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
The grain and oilseed rally tried to take a bit of a break Wednesday and again on Thursday. The run has been so strong and so fast, many are looking for a correction to help with the overbought condition of the market. The market made a key reversal lower Wednesday morning after trading to new highs Tuesday night and then lower on Wednesday during the day. Many were looking for a bigger pullback, but the market gained some remarkable strength during the day to make new highs later in the day. The market tried for a larger correction on Thursday when everything opened lower for the overnight session. Wheat was down as much as 45 cents and beans down as much as 20 in the morning. There were headlines that sparked the selling, but it is driven mostly by money flow. The funds have been huge buyers on this run. That money flow can change directions quickly for reasons other than changes in the underlying fundamentals. Since we are heading into the Northern Hemisphere harvest, that adds much more risk of volatility. This market could get violent. Wheat sold off dramatically on Thursday after Putin, who was speaking at an economic forum in Russia’s Far East, said there was a chance of reaching an agreement to end the war in Ukraine. That is all it took to turn the tide. That is how quickly the money flow can change the direction of the market. The war has been going on for over four years, and there has been damage to production and transportation infrastructure that will take many years to fix. But if there are steps toward de-escalation, the market is going to take a lot of the war premium out of the market immediately.
Soybeans traded lower on what was perceived as growing tensions with China at the G-20 finance ministers meeting going on in North Carolina this week. There were also rumors that the meeting between Trump and Xi could get delayed. Keep in mind, their last meeting was also delayed one time. Before the close on Thursday, soybeans were able to trade back to the highs.
The world balance sheets are getting tighter in soybeans, corn and wheat. There is a fundamental reason for the market to rally to try to slow some demand and encourage production in South America. There are many reasons for the market to need to go higher, but if the money flow turns, it can drop faster than it went up. No one on Earth knows where the high will be. We can only see it in hindsight. It is hard to sell when it is going up every day, but the market has given us a gift. Take at least a little risk off the table.