Play Turner’s Take Podcast Episode 228

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I am working from home while IL has a Stay at Home order in effect until April 30.  My office phone 312-706-7610 will roll over to my home office if you call my trade desk.  This week we go over why May Crude Oil traded at negative prices and where we think the lows will be for corn. Make sure you take a listen to the latest Turner’s Take Podcast!

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Crude Oil

May Crude Oil settled at -$37.63 yesterday and then came off the board today at $10.01.  We go into detail on the podcast why crude traded negative prices but here is a short summary of the factors:

* Refineries are shutting down and not buying crude oil

* Storage is either full or already contracted for future deliveries

* May was heading into Last Trading Day (LTD)

* Liquidity was low but OI was over 100K the day before LTD.  This resulted in a very rare “Long Squeeze”

June Crude oil is now the front month and we think it can trade in the single digits and the teens.  For crude to rally we need to see Stay At Home orders lifted and/or OPEC make a huge cut in production.

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June Crude Oil Daily Chart

Corn

How low can corn go?  I think the worst case scenario is a harvest low of $2.70.  Here’s why

* Loan Value for 2020 corn is $2.20

* If the worst case scenario comes true, then old crop corn ending stocks are 2.5 billion or higher and new crop is 3.5 billion or higher

* Such large ending stocks kills the basis and the national average corn basis is probably around 50 under (similar to the depths of the tariff lows)

* $2.20 Loan Value + $0.50 national average basis = $2.70 futures

Is it an exact science? No. But it does give us a good frame of reference if everything goes wrong for corn.  When wheat was sub $4 we found that when the market got close to loan values that the lows were usually in.

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Dec 2020 Corn

Gold

When it comes to my thoughts on gold it is all about figuring out if we are in a deflationary or inflationary environment.  I think most crisis like the virus, war, systemic economic failure, etc start off as deflationary.  That is what we are seeing now.  Once the event plays out inflationary forces start to kick in.  That usually comes in the form of monetary and fiscal stimulus.  The same thing happened with gold during the subprime crisis.  Gold was lower to neutral at first and it took the massive QE from the fed to really get gold going. I like getting long gold and holding.  The micro contract is 10 ounces of gold and at $1700 that is $17,000 worth of gold per contract.  The margin is only $1000.