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How long will the bull market last?

Keep your eye on global stocks, particularly corn

Mike Wilson, Senior Executive Editor

December 8, 2020

3 Min Read
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Higher grain prices are a welcome holiday gift for the Corn Belt. Farmer attitudes have also been lifted.

“People think there finally might be light at the end of the tunnel,” says Paul Neiffer, CliftonLarsonAllen CPA. “For once, production worldwide is not exceeding consumption. We now realize China lied about the inventory it had on hand, especially corn and wheat, and they’re replenishing their hog herd.

“We’re also looking at weather issues possibly impacting South America,” he adds. “Those are all positives. It’s a time for guarded optimism.”

If you follow farm cycles, you know booms are typically followed by a five- to seven-year bust, or correction. This downturn has lasted six years.

“We appear to be going back to a period where the market allows farmers to make a living,” Neiffer says.

Yes, but for how long? Is it the start of a demand-driven bull market, or a short-term blip in the ongoing downturn?

No one can predict the future, but there are some clues to watch. Global demand has been increasing, especially due to higher Chinese corn purchases. That can end any time. U.S. production numbers reported by USDA will likely continue to decline, says Brian Splitt, AgMarket.Net technical analyst. Both fundamentals — less supply and higher demand — equate to tighter carryout numbers, which in turn push prices higher.

Related:Precision ag market is growing

“December corn has taken out the previous contract high made during July of 2019. If the trends of lower yield and additional demand continue, we could see corn test other previous years’ highs,” he says. “The next area to test is around $4.40, which stopped the 2015 and 2016 rallies, and then $4.64¼, last year’s high.”

Yearly reversal?

Where it gets interesting is if March corn trades above $4.64¼ before the end of the calendar year. That would forge a year where corn traded below the previous year’s low to start the year, and then finishes the year above the previous year’s highs. That’s what traders call a yearly reversal. The market looks at these longer-term reversals as potential shifts in market direction. The longer the time frame, the stronger the reversal.

“If we get through the calendar year with the March ’21 contract above $4.64¼, it means this year’s trading range would completely eclipse last year’s trading range, signaling a major bullish shift,” Splitt says. “It’d be a signal that the corn market has made a multiyear bottom.”

For soybeans, getting above $11 per bushel was a major hurdle. “When the market did get through $11, due mainly
to Argentine flooding in 2016, it then climbed to $12 in the same month,” Splitt says. “January soybeans staying above $11 after the November WASDE report gives us confidence that we’ll probably go take a look at $12.”

Related:The why of market rallies doesn’t matter

Global forecast

Keep your eye on global stocks, particularly corn. Ukraine corn production estimates just dropped by 8 million metric tons. Chinese demand is a front-burner conversation, as is South American weather, which Splitt says will have a drier bias in Argentina and southern Brazil due to La Niña.

“We believed corn carryout would eventually work below 2 billion bushels,” Splitt says. “Based on USDA’s update to Chinese corn stocks, we feel demand could still be underestimated by several million tons.”

USDA’s Foreign Agricultural Service upped Chinese corn import estimates to 22 million metric tons, but that would only keep the country’s stocks level year over year. China needs to build corn stocks to previous years’ levels to bring its internal price down.

On soybeans every minor adjustment counts.

“It’s extremely fragile,” Splitt notes. “If USDA lowers national yield just another half a bushel per acre, that drops stocks to 150 million bushels. Some in the industry believe soybean demand is still understated. It is imperative that South America has an adequate soybean crop to keep prices from going vertical. November soybeans just expired at the highest price of any contract’s expiration since summer of 2014.”

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About the Author

Mike Wilson

Senior Executive Editor, Farm Progress

Mike Wilson is the senior executive editor for Farm Progress. He grew up on a grain and livestock farm in Ogle County, Ill., and earned a bachelor's degree in agricultural journalism from the University of Illinois. He was twice named Writer of the Year by the American Agricultural Editors’ Association and is a past president of the organization. He is also past president of the International Federation of Agricultural Journalists, a global association of communicators specializing in agriculture. He has covered agriculture in 35 countries.

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