Why Does the Grains Sector Smell Like a Fish Market Thursday Morning?

• Corn contract's were showing fractional gains pre-dawn as the market's real fundamentals grow more bullish. 

• Soybeans followed suit, posting an overnight rally after closing lower the past three sessions. 

• National Cash Indexes for the 3 major wheat markets continues to show bloated supplies in relation to demand. 

Morning Summary: Sitting at my computer looking at the quote screen, a fresh cup of coffee in front of me, and I’m getting the smell of fish. As if I’m at the famed Seattle Fish Market where vendors toss around the catch of the day as if were bags of grain. No, I’m not having salmon on a fresh bagel for breakfast, though that does sound tasty. I’ll explain in more detail shortly (though many of you have likely followed where I’ve already drifted). The US dollar index ($DXY) continued its strong climb overnight through early Thursday morning, adding as much as 0.58 and sitting near its high as of this writing. This took the greenback to 107.06, an incredible run and the strongest it has been since the November 1, 2023, peak of 107.11. Beyond that is the October 3, 2023, high of 107.35. The market certainly seems to be telling us reignited inflation fears and higher interest rates are on the way. It’s not surprise that in response to this move by the dollar, the floor fell out from under gold as the December futures contract dropped as much as $45 (1.7%). Energies were mostly higher pre-dawn with the spot-month WTI crude oil contract gaining as much as $0.37. 

Corn: Now, let’s get back to our discussion of fish. Those of you following along with the Chart of the Day already know what’s coming next as we turn our attention to the corn market. After closing lower the previous 3 days, corn was higher overnight through early Thursday morning, turning the spotlight on a possible Benjamin Franklin Fish Analogy[i] (though putting fish under a spotlight for any length of time seems like a bad idea). With the Dec24 issue heading into the sunset, our attention turns to the March 2025 issue (ZCH25). Here we see a 3.0-cent overnight trading range on trade volume of about 15,000 contracts with the issue sitting 0.5 cent higher at this writing. Granted, March 2025 has some work to do through the end of Thursday’s session, but it’s a start. Fundamentally the market continues to grow more bullish with the March-May futures spread covering 31% calculated full commercial carry at Wednesday’s close. The National Corn Index came in near $4.0525 putting it 21.25 cents under December and 32.25 cents under the March futures contract. Last Friday’s final figures were 22.75 cents under and 36.0 cents under respectively. This tells us at least some of the recent 2024-2025 export sales are for immediate shipment. 

Soybeans: The fishy smell is also lingering around the soybean market early Thursday morning as the January futures contract (ZSF25) rallied as much as 6.0 cents overnight and was sitting 2.75 cents higher at this writing. While its possible this was nothing more than the next layer of market lasagna[ii] (Seafood lasagna for breakfast anyone?), soybeans didn’t see the initial surge in overnight trade volume generally associated with a round of export sales to Eastern Hemisphere buyers. As usual, we can’t get a good read on overnight spread activity given the lack of trade volume in deferred issues. January was showing a moderate-to-light 15,000 contracts changing hands while March registered 5,400 contracts and May was sitting at less than 2,000 contracts traded pre-dawn. All that being said, January is in position to also confirm a Benjamin Franklin Fish Analogy after closing lower the past 3 sessions, the last two testing the short-term technical target near $10.0250. Fundamentally, what stands out to me with soybeans is as the November issue moves to expiration later today, the Nov-January futures spread covered a bullish 12% cfcc at Wednesday’s close. As for national average basis, my latest calculation came in at 54.25 cents under January futures as compared to last Friday’s figure of 56.5 cents under January. 

Wheat: While there is no fishy smell associated with the wheat sub-sector, there is the distinct odor of a rotting whale carcass[iii]. Let’s start our discussion with a look at Kansas City (HRW). Here we see the December issue dropped as much as 2.5 cents overnight on light trade volume of only 2,100 contracts. However, that’s not what stands out to me at mid-month. Instead, take a look at the National HRW Wheat Index ($CRWI) (national average cash price) calculated near $4.8550 Wednesday evening. This put available stocks-to-use[iv] at 44.6%, what would be the largest end of the month figure since 46.8% at the conclusion of August 2020. Additionally, my latest HRW national average basis calculation came in at 55.25 cents under December KC futures as compared to last Friday’s figure of 56.5 cents under and the previous 5-year low weekly close for this week of 63.25 cents under December. The nearby Chicago (SRW) issue was down 2.0 cents at this writing after sliding as much as 3.25 cents overnight while registering 8,000 contracts changing hands. Watson continues to put pressure on the more heavily traded wheat market as Dec Chicago closed 20.25 cents lower from Tuesday-to-Tuesday before extending its selloff another 14.5 cents through the overnight low of $5.3775. 

[i] A possible Benjamin Franklin Fish Analogy: Like guests and fish, markets start to stink after three days/weeks/months (whatever time frame is being studied) of moving against the trend.

[ii] Referring to the idea of the Lasagna Likeness: Markets that repeat themselves, similar to the process of making lasagna. For example, soybeans jump higher on the open of the overnight session on Eastern Hemisphere buying before drifting lower through the daily close. 

[iii] The social media video of the exploding carcass of beached whale comes to mind. It’s not for the faint of stomach. 

[iv] No, not “ending stocks-to-use” the rest of the industry talks about based on USDA’s imaginary supply and demand numbers.