December 9, 2021
Farmers are full of uncertainty right now. What crops should we plant next spring? Should we price old crop grain? When should we start pricing new crop? Will input prices ever fall?
Currently grains continue to trade near higher historical values. Corn and soybean prices are consolidating in a sideways fashion, and wheat prices holding on to a long term uptrend after a recent price correction.
What will happen next? No one can say for sure, but here are nine indicators that could offer clues.
While this may seem basic, the months of January and February hold critical keys to supply information for both domestic and global grain production.
First is the Jan. 12, 2022 USDA WASDE report. This report will show final production numbers for the crop year, meaning if there are any last minute acreage or yield twitches to the crop that was grown in the United States in 2021, it will be announced on this report.
In addition, the quarterly grain stocks information will be announced on this date, which provides additional clues for old crop supplies on hand. I remain adamant that old crop ending stocks for corn for the 2020-21 crop year are tighter than the USDA is suggesting. Basis was so strong during late August, September and even early October at harvest time that I think there was very little old crop corn remaining in farmer bins. This report should shed light on that notion.
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Global demand for corn, soybeans and wheat overall is hearty. Corn use for ethanol is likely ahead of USDA projections, while export sales for grains remain in line with USDA projections for this current crop year.
One hiccup would be if Argentina had adverse weather conditions for their soybean crop. Argentina is the world’s largest exporter of soybean meal and soybean oil. Should their soybean crop be smaller, that might actually create more demand for U.S. soybean meal and soy oil for export. That would be an unexpected “blessing” for our market and support prices.
La Nina potential in South America is going to be critically monitored over the next eight weeks as Brazil and Argentina now have the crop planted, and head into a prime production window. Remember, La Nina in South America would suggest warmer and drier weather potential. Currently, Southern Brazil and Argentina are both on the drier side.
Here in the U.S., snowpack in the Rocky Mountains will be paramount for farmers in the Western Plains to replenish irrigation potential for spring and summer months. Also when looking at the most recent drought monitor index, half of the United States remains in some sort of drought with subsoil needing a desperate recharge to be in optimal position for spring 2022 production.
Potential black swans
Trade wars, Olympic boycotts, Middle East turmoil, renewable fuels, Russia and Ukraine, China in the South Sea; these are the headlines to watch for potential “black swans.”
Remember, even though the fundamental stage is being set for potentially supportive prices heading into 2022, one negative story from any of these topics could create a negative price reaction that could bring a bull run to a screeching halt. 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.
The value of the U.S. dollar has been in a slow uptrend since June. Will that continue? There will be important Fed commentary released next week which may shed a light on next directional steps for the value of the U.S. Dollar.
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 is important to monitor for many reasons: its economy and GDP, internal grain production, grain demand, and demand for feed for livestock. Thanks to the overall growth of its economy, the middle class within China is employed with more disposable income than ever. Because of this increase in income, food consumption for higher protein has also increased in the form of dairy, beef, poultry and pork.
A new wrinkle is the fact that China is hosting the winter Olympics and many nations will send their athletes, but not diplomats, due to China’s human rights abuses. China is not pleased about this. It likely will not do anything brash prior to the Olympics, but when the games end on Feb. 20, some creative retaliation measures may play out.
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, or early summer, when the size and potential production of the crop is unknown or a summer weather threat may be looming.
Interestingly enough, there is a strong seasonal tendency for corn and soybean prices to peak in early to mid-February. Why mid-February? Well, this conveniently coincides with the timing of a better understanding of the size of the South American crop, plus this year it will be the end of the Olympics in Beijing. The USDA outlook forum will occur Feb. 24 and 25 where they release one of the first guestimates as to spring planted acres.
Being aware of these seasonal time frames can help you make smart pricing decisions for your crops.
Crude oil futures have backed off the $80 price level, but appear to have found support at $70/barrel. Will the world keep turning in a post-Covid emergence, and will economies keep humming along, being able to support higher energy prices? That is top of mind heading into the New Year and something to monitor.
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. Nearly one third of the corn grown in the United States is used for ethanol production. That means, over a third of the value of corn is tied to energy.
To be specific, the big investment money that partakes in the trading of commodities. The fund managers watch and monitor all of the fundamentals listed above, as they are looking for opportunities to invest and make money. Every week, the government requires the funds to disclose the amount of positions bought or sold during the week. From there, we can track if they are amassing a long position in the market, or a short position.
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. While much of the agricultural industry is honed in on USDA reports and South American weather, there are other fundamentals that need to be constantly monitored as well.
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.
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.
Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
About the Author(s)
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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