Weekly Basis 01/28/2022

The Dow Jones Industrial Average settled at 34,725.47, up 460.10 points for the week.

Crude oil was at $87.28 late Friday, up $2.42 for the week.

The dollar index is at 97.23, up 1.60 for the week.

March (H) corn settled Friday at $6.36, up 19¾ cents for the week.

Dayton, Ohio Cargill is paying $6.36 for corn, even with the March futures, which is a steady basis with a week ago. Their fall delivery basis is steady at 30 under the December futures.

Poet at Iowa Falls is paying $6.36 for corn, even with the March futures, which is a steady basis with a week ago. Their fall 2022 delivery basis is steady at 30 under the December futures.

The March to July corn carry went from -7¾ to -9¾; 2 more cents of inversion. Very Bullish!

The CFTC’s Commitment of Traders Report (COT) is issued every Friday afternoon. It reports open interest as of the close of business the previous Tuesday.

The big spec funds added 51,633 contracts to their corn position to bring them net long 276,521 contracts of corn. The index funds added 234 contracts to their long position to bring them long 442,390 contracts of corn.

Corn open interest increased by 75,478 contracts to 1,903,794 contracts.

Eastern Corn Belt ethanol crush margin is $1.31 today compared to $1.61 last week and $1.35 a year ago. The price of corn subtracted from the value of processed products = ethanol crush margin.

March (H) soybeans settled at $14.70, up 55¾ cents for the week.

Sidney, Ohio Cargill is paying $14.70 for beans, even with March (H) futures, which is a steady basis with a week ago. Their fall delivery basis is steady at 20 under the November.

Iowa Falls Cargill is paying $13.95 for beans, 75 under the March (H) futures, which is steady with a week ago. Their fall delivery basis is steady at 40 under the November.

The March to July soybean carry closed at 3½ cents carry, losing a whopping 9½ cents. Bullish!

The big spec funds added 18,334 contracts to their position to bring them net long 89,651 contracts. The index funds cut 14,149 contracts from their position to leave them net long 191,114 contracts of beans.

Soybean open interest increased by 42,369 contracts to 883,842 contracts.

The soybean crush margin was $3.09 yesterday, compared to $3.93 last week and $1.68 a year ago. Crush margin = value of the oil and meal extracted from a bushel of beans minus the cost of a bushel of beans.

CBOT July soft red winter wheat was up 7¾ cents this week to settle at $7.82. The local elevator is paying $7.47 for new crop wheat, 35 under the July wheat which is a steady basis with a week ago. King Milling in Lowell, Michigan is paying $7.69, 13 under the July for new crop, which is steady with a week ago.

The big spec funds cut 9,143 contracts from their soft red winter wheat (CBOT) position to leave them net short 33,001 contracts. The index funds added 402 contracts to their position to bring them net long 138,222 contracts of wheat.

Soft red winter wheat open interest increased by 29,251 contracts to 498,029 contracts.

KC July wheat was up 6 cents to settle at $8.04½.

The big spec funds added 3,951 contracts to their hard red winter wheat position to bring them net long 15,775 contracts. The index funds added 1,104 contracts to their position to bring them net long 56,055 contracts of hard red winter wheat.

Hard red winter (KC) wheat open interest increased by 2,211 contracts to 242,083 contracts.

September (U) 2022 spring wheat was down 4¾ cents this week to settle at $8.92.

The Baltic Dry Bulk Index settled at 1,302, down 172 points for the week.

What you should have noticed:

Crude oil, the dollar index and the corn and beans were sharply higher. It is not supposed to work that way.

If the dollar is higher, crude oil is usually down because the buying power of the dollar goes up as the dollar index goes up. Thus, oil producers are willing to sell crude oil at a lower price because they fewer dollars have the same buying power as before the dollar went up. Grains are supposed to be down when the dollar is stronger because it takes more foreign currency to buy a dollar, making export of US products more expensive. Yet, this week saw perhaps the strongest up move in the dollar index in years and corn and beans had big gains this week. How is can that be reasonable?

Pretty simple really, but very unusual.

If you are a foreigner who needs to buy a steady supply of US grain or beans, for the past four decades, you waited for a strong dollar to weaken in a few days or a few weeks and then buy US products.

Times are different now. Interest rates are going to go higher. Everyone knows that. Higher interest rates mean more investors want the US dollar to earn the higher interest rate on US bonds with very little risk.

If it looks like the dollar is in a long term uptrend, importers want to buy ahead all the US products they can before the dollar gets stronger and everything exported from the USA is more expensive each month.

Hard to believe? Well, yea, because it has not happened in 43 years.

In 1979 the value of the dollar went higher every month as interest rates went higher. Yet, 1979 was a record high for USA corn exports that stood for 26 years!

The world market place (aka futures) is going to charge you 9¾ cents a bushel to store your corn on your farm from March to July, two more cents than last week. Are you willing to lose 9¾ cents a bushel this spring into summer so you can pay insurance, utilities and interest on corn in the bin? Does that sound like good many management? Yes, maybe a firming basis will cover that loss, but maybe it won’t.

The soybeans crush margin was down hard, but still $1.41 better than a year ago. Ethanol crush is less than a year for the first time in long time. Let me look… since the last week of August. Now, this is not the end of the world for the corn market. After all corn was up 39¾ cents the past two weeks. The price of ethanol and DDGs have yet to catch up… but maybe they won’t. But with crude oil higher than it has been in seven or eight years, ethanol use should rapidly increase.

The big spec funds were net buyers and open interest increased in the four commodities. New money coming into these commodities and they are buying.

Ocean freight rates are still reasonable!