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Theater of the absurd, 22.04.20

Of course, I had no idea yesterday morning when I wrote about crude oil markets that it would ultimately turn into a historic record-setting session with spot WTI futures descending to as low as minus $40 per barrel.

Someone who owned crude oil was willing to pay someone else $40 a barrel to take it off of their hands. Sounds absurd, right? And it made my measuring target of $7 look downright bullish, but it did happen. I could not help but think of the expression, “Theater of the Absurd,” which is more than an expression as it was an entire genre of theater that became popular post-WWII. Just out of curiosity, I had to look this up and found it described as taking the form of; “man’s reaction to a world without meaning; menaced by invisible outside forces; with horrific or tragic images, and characters caught in hopeless situations.” My goodness, I thought, they were writing about the futures markets and the people who trade them! Life really does imitate art.

Realistically, for all intents and purposes, what occurred yesterday was a fluke. The May futures contract was down to its last day, and a portion of trade, volume, and open interest was limited, crude oil storage facilities at deliverable locations are bursting at the seams, and the overall psychology and fundamentals of the market were very bearish. In essence, the perfect storm of bearishness. I was somewhat reminded of a situation back in March of 1996, when on the final day of trade, March wheat futures rallied over $2.40, pushing beyond its record high by over $1.00 before falling back to earth all within a few minutes of trade. Regardless, I am not implying that the action in crude oil yesterday does not reflect a currently bearish situation and that if things have not improved by the time the June contract reaches expiration that we could not experience an encore performance, but I would dare say this is more of a short term aberration than any reflection of the real value of crude oil. I would go one step further and suggest wild sessions such as this only occur at the end of a major swing.

Unfortunately, the action in energies weighed heavily on the corn market as well yesterday as many assume another nail was pounded into the coffin of the ethanol casket. Spot futures have now pressed down to the lowest point traded since we established the cycle low back in 2016 at 3.01. While it is difficult to argue with the logic of lower corn usage due to lower ethanol production, (haven’t they heard a number of plants are now making hand sanitizer?), but as is always the case when we are reaching low extremes, the trade will build in worst-case scenario models and prices always push further than they realistically should. That is the position I believe corn sits in right now, and the price action throughout the balance of this month will little more than market “noise.”


Domestic corn planting moved ahead 4% last week and, as of Sunday, stood at 7% complete. This is 2% ahead of last year but still 2% behind average. Looking at the major midwestern states, Iowa is 2% complete versus an average of 7%, Illinois 8% versus 11%, Minnesota 1% compared with a normal 7%, and Nebraska at 2% versus 5%. Indiana was the exception to the rule here, with 4% planted compared with an average of 3%. Nationwide there is also 2% of bean acreage planted versus the average 1%. Cotton planting has reached 11% complete, which is 2% ahead of the norm, and sorghum is right at the 5-year average of 19%. Winter wheat conditions slipped backward, with 57% rated good/excellent versus 62% last week.

Bean harvest in Brazil is estimated to have reached 94% complete, with Rio Grande do Sul, bringing up the rear. It is this state that has witnessed the poorest yields this year due to drought, with some reporting as much as 50% loss but overall, predictions for a near-record or record total production for the nation hold. There is also growing concern about the impact of dry weather on the safrinha corn crop as it moves toward maturity. Soybeans harvest in Argentina has kicked into high gear, and it is estimated to now be nearly 38% complete, versus 16% a week ago. Corn harvest moved ahead almost 10% and stood at nearly 33% complete.

Dry weather is a growing concern both literally and figuratively in Russia. The private consultancy group IKAR has lowered its wheat production estimate over 2 MMT to 77.2. The Grain Union is more optimistic and continues to stand by their estimate of 80 MMT and believe the total grain crop will reach 130 MMT versus last year at 121. Keep in mind; this is the country that did not think COVID-19 would hit their population. The most recent update I have seen reports nearly 53,000 confirmed cases and 456 deaths to date.

Another pork processing facility here in the U.S. has been temporarily closed. JBS announced the shutdown of their plant in Worthington, Minnesota, where it is estimated that 5% of U.S. pork is slaughtered. Cargill also announced they were idling a cattle processing facility in Canada.

Finally, could African Swine Fever be staging a comeback in China? I suspect that is the question on the minds of authorities over there as the ag minister detected a case in hogs being transported to Sichuan. There have now been more than two dozen new cases reported in the past two months.

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