Markets Now is brought to you by Brevant Seeds. There are wins, and then there are wins that you get with Brevant Seeds. Big game-changing wins that turn heads and make people take notice. Get started at brevant.com/changethegame.
Hey. You were right. You were right. You were right. You were right. You were right. When you choose Brevant Seeds, you don't just win, you get to be right.
Welcome to Markets Now. I'm Michelle Rook with Shawn Hackett of Hackett Financial Advisors. Well, we saw a lot of green in the egg space again today with the exception of the corn market. But let's start off with the wheat market, Shawn, because more new contract highs in the winter wheat contracts. This market is putting in Black Sea war premium, isn't it?
Absolutely, and it needs to do it. I think what everyone has to understand is, you know, that the largest export months are September, October, November. In the month of August, they exported only the same amount that they did in 2010 when they had a one-in-50-year drought and had export controls. So, it's just incredibly low volumes coming out of the region. And if those supplies stay turned off going into September, I don't believe we're anywhere near close to pricing in what that means for lost supply and scrambling buyers having to go find other supplies elsewhere to make it up. It's going to be quite a scramble in our opinion.
So, do you think that the exports out of the Black Sea have been cut by 50%? What?
Yeah, I would say that we're down by 50%. And that would be my view is the worst-case scenario is that we stay at this 50% mark through the end of the year and there's nothing resolved and all that supply gets stuck in Russia-Ukraine. I mean, who are they going to... we didn't have good hard red winter wheat crop here. We know, you know, EU, there's other places they can get some wheat, but can they really make up that lost quantity? I don't think so.
And Ukraine is already talking about not planting as much wheat for next year, aren't they?
Yeah, well, I mean, you're starting to hurt each other's important agricultural assets. The environment is not conducive. The price of wheat in Russia-Ukraine is going down because they can't get the wheat out. The farmers there are just looking at dire financial circumstances. And so, yeah, the real possibility of lower planted acres, lower production potential because of lack of investment incentives is certainly there.
Now, the funds were probably slightly short before this rally really began here this last week or so. Where are the funds at now and how much further do they push this, do you think?
You know, I mean, certainly they still have room to push it. You know, I don't know exactly where they're at today. We'd have to see the COT here on Friday. But I don't believe that they're anywhere near a maximum long position as a percentage of open interest, which is what we look at to see when they might be exhausting their ability to continue to buy into the market. I still think they got plenty of ammunition if they continue to be fed the kind of bullish news that they're looking for for the next, you know, weeks and months.
Well, speaking of the funds, the funds have piled into this corn market. We're just off of new contract highs scored yesterday. A little setback today, just a little end-of-the-month profit taking or farmer selling or what?
I think it's a little bit of both. I mean, there's always some shenanigans at the end of a month as you probably know and many know. And so, I think there's a little bit of that going on. Plus, there's no question there's some corn that needs to be sold ahead of harvest here. Logical. And even for the December 27th contract, we actually, you know, got hit a little harder today. There's some automatic hedge programs that when you hit 520, 530, you automatically sell X amount of percentage of your production. I think that was a logical reaction to a market that's moved up a lot, but I don't think it's sustainable. I think it's more short-term in nature.
Yeah, do you see the funds and even end users buying on the brakes here in corn?
I would believe that if we're correct that we're in a more protracted move to the upside, higher highs and higher lows, every break will be bought by cash buyers, by the physicals, by the people that need the product. I think everyone is now understanding that there's likely not going to be as much or not enough product, and you need to be taking advantage of dips instead of selling rallies.
Yeah, so what yield do you think the market is trading right now? Somewhere between 173 from Pro Farmer to say 180 from USDA? Is it in the middle there or where?
I think they're trading the typical correlation between Pro Farmer results, and we did analysis that it typically, Pro Farmer's about 3% below what it actually is in January, which would put you in that 176, 178 area, which is smack dab between USDA. I think the market is trading that. The difference is, is it a little higher or lower, and that will determine what the actual carryouts. We think it's likely going to be closer to Pro Farmer's numbers this time around.
So, our $6 December corn contracts, are we headed in that direction, do you think, for Dec corn?
I think that is a reasonable target fundamentally with what we think we're going, what's happened with the EU corn crop and what we think's going to happen with some really super El Nino induced adverse weather in Brazil, we think $6 corn is a reasonable target to correctly balance supply and demand going into the South American growing season. I think that's reasonable.
Yeah, especially if you have wheat continuing to make contract highs, right?
