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Watch these fundamentals to get better sense of market direction in the next few weeks.

Naomi Blohm, senior market adviser

March 23, 2023

7 Min Read
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In recent conversations with producers, many questions emerged about varying aspects of grain marketing and current grain prices. The top five:

1. Why are corn and soybean prices sinking lower – I thought we had tight supplies?

2. Will the funds ever become buyers again?

3. Global demand is still apparent, why is the market ignoring this?

4. How am I supposed to market my corn and soybeans when I’m not sure what my new crop will yield?

5. New crop grain prices will improve, right?

All of these questions are top of mind for producers and the overall agriculture industry right now as they eventually lead to future buying or selling opportunities.

The answers to the above questions will surface in coming weeks and months as additional fundamental information is gathered.

The Prospective Plantings report and Quarterly Grain Stocks report will be out late next week, which will lay the next cornerstone for grain price movement as we begin the second quarter. However, with the background of rising interest rates, and funds leaving commodities, what could change to bring money back into commodities?

In the meantime, be aware of all the other price components tied to the grain market, besides traditional supply and demand. There are many moving parts to grain marketing and you need to watch them all, balance them accordingly, and be ready with a mindset that can capture both market opportunities and manage risk.

Related:5 steps to improve your grain marketing

Let’s break it down with an updated synopsis of Naomi’s nine “Need to Know” grain marketing fundamentals:

Supply

Piecing together the supply puzzle will be paramount in the coming weeks and months. How many acres will be planted in the United States this spring? Will there be any last minute acre switching? With the extreme snow cover in the Dakotas, will they see a late spring? Drought continues in the Southern Plains, will that play a factor in the crops planted there this spring? Will parched winter wheat fields get abandoned? The world is already pricing in and expecting the American farmers to produce a record crop, will it happen?

The reality of tight ending stocks for old crop grain, for those nine grain and oil seed commodities, still rings true. The question going forward is if the crop that will be planted this spring, can make up for those tight supplies, and start the perception of larger U.S. supplies?

It is not just the United States, but the world is still sitting on tight supplies of grain, and the world needs the entire Northern Hemisphere to have record production this summer to fix the situation.

Demand

While high prices did nip some demand for grains globally, when looking at the big picture, global demand for corn, soybeans and wheat overall is hearty. China, now done with Covid Lockdowns, seems to be running on all cylinders again. Demand for grains and other commodities is consistent compared to previous years.

Weather

Feet of snow in the Sierra Nevada mountains, incessant rain in California, long lasting winter in the Dakotas, and a drought that still plagues Nebraska and Kansas, Oklahoma and Texas. Mother Nature reminds us she is still in charge.

Weather watching importance remains in the forefront. Going forward, weather watching will matter from now until Thanksgiving. Not only here in the United States for spring planting, but for Brazil as that second crop corn is now nearly planted, and will be entering the major production stages in the coming weeks. Trade volatility and price action volatility based on every single weather forecast is highly likely.

Geo-political drama

Higher interest rates, taming global inflation, banking crisis, recession talk, China buddying up to Russia, the war continues in Ukraine, what will be next?

One negative or positive story from any of these topics could create a negative price reaction or sudden bullish price reaction. Therefore, it is paramount to have a plan in place to know when or how to price your grain, just in case one of these black swan stories emerges, sending prices into a spinning free-fall lower, or a sudden rally higher.

U.S. dollar

The value of the U.S. dollar has retreated recently. Lately it has been following the perception of interest rate hikes, jobs data and unemployment information. There will likely continue to be many fluctuations in the currency for the remainder of 2023 as the Fed continues to fight the battle against inflation.

All you need to remember is that when the value of the U.S. dollar is down, it makes it cheaper for other countries to import our commodities due to currency exchange rates. A lower dollar increases demand for corn, soybean, and wheat exports.

China

China is important to monitor for many reasons: their economy and GDP, internal grain production, grain demand to be imported, and demand for feed for livestock. Thanks to the overall growth of the economy in China as they have emerged from the Covid lockdown, the middle class within China is back to working with more disposable income to spend.

Remember how Americans emerged from Covid lockdown? We went shopping and traveled! The Chinese people will likely do the same. Because of this increase in income and freedom to travel, food consumption will increase, especially for higher protein in the form of dairy, poultry, beef and pork.

China is also important to watch in terms of geo-political ties to the world. They continue to cast their web around the world to become a global superpower, and that can trigger volatility and tensions at any moment.

Energy markets

Crude oil futures have been hovering on both sides of $70/barrel for a few weeks. Supplies are sufficient and demand is also strong. Keep in mind that sometimes, when the crude oil price rallies, gasoline and ethanol prices can rally as well. If ethanol prices are rallying, then odds are, corn prices are rallying too. Last year, according to the most recent USDA report, U.S. farmers grew a 13.73 billion bushel corn crop last year, and 5.25 billion bushels of corn were used for ethanol. That means, over a third of the value of corn is directly tied to energy.

Funds

The funds. The big investment money that partakes in the trading of commodities. The fund managers also watch and monitor all of the fundamentals listed above, as they are looking for opportunities to invest and make money.

Recently the funds have been exiting their long grain commodity positions, and in some instances going short (becoming sellers) in the market due to ideas of outside market concern and perception that the entire Northern Hemisphere will have a perfect, record crop this summer.

We saw the funds partake in this sell off mentality in March of 2008 (the year that 2023 is being compared to regarding investment money), only to have the funds TOTALLY change their mind and become buyers starting on April 1, the first day of the second quarter.

Seasonals

Seasonals are still important to monitor for grain markets. When are grains usually the cheapest? At harvest, when supplies are plentiful. And when are grain prices often the most attractive? Late winter, early spring or early summer, when the size and potential production of the crop is unknown.

Being aware of these seasonal time frames can help you make smart pricing decisions for your crops. It is also interesting to note that (with the benefit of hindsight) the funds seem to be trading the “seasonals” nearly to the day.

That being said, there is a strong seasonal tendency for December corn futures and November soybean futures to find an early spring low on March 31, with a rally following on April 1, the first day of the second quarter. That rally often continues until late May or early June before peaking.

Balancing all “Nine Need to Knows” and being aware of how they fluctuate throughout the year will help you to best manage marketing opportunities and minimize market risks. Re-visit these fundamentals often. Fundamental news continues to shift weekly. Be ready to act on pricing opportunities as they become available. Have action plans ready for whatever market scenario unfolds. Remember, marketing is how you get paid for your hard work. Farm market scenario planning is hard work; and those who take time to strategize and execute, realize their pay day. Prices can turn on a whim, be confident and ready.

About the Author(s)

Naomi Blohm

senior market adviser, Total Farm Marketing by Stewart Peterson

Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.

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