Grain bulls have lost more ground than they have gained lately, and while they have had a few shining moments, those moments haven’t been able to sustain much momentum. It makes one wonder if the fiery markets we saw take off a year ago will be back anytime soon.
Last week, Advance Trading’s Dr. Larry Shonkwiler nailed down some of the key drivers for the grain market, primarily global demand and South American production. These are two of the many important factors that will dictate the value of U.S. grain prices longer term. I encourage you to checkout his blog if you missed it.
Meanwhile, the trade has another crop report to digest this Friday — the September WASDE report. With USDA recently announcing they will re-evaluate acreage data earlier than normal, this opens up the possibility of more surprises to potentially catch the trade off-guard and out of position, again.
Directional price bias
The only certainty going forward is that things will change and it is that time of year where we can really dig into directional price biases, as I highlighted in my recent piece. These biases can have a big impact on the decisions you make (or don’t make). Remember, THE MARKET DOESN’T HAVE TO DO ANYTHING. Don’t ignore the possibility for things to change in a big way. Often, these changes can be things we least expect.
We all have a fresh memory of how exciting the market gets when stocks-to-use ratios tighten and the trade gets nervous about meeting demand. Grain bulls are holding on to the fact that ending stocks for corn and soybeans are still tight enough that an issue with global production could quickly spark the powder keg again.
On the flipside, the bears know these are global markets and producers across the world are motivated to produce as many bushels as they can to meet demand. Farmers have proven they can do so — if mother nature cooperates. Remember that it is impossible for anyone to consistently predict price, so respect the multiple possibilities that could play out going forward. The market has a way of lulling you to sleep.
This calendar year is setup to be a good year for many in farming, yet there is plenty of uncertainty about next year.
Marketing decisions now
At this early point in the marketing year, it is important to focus on the cash marketing decisions you need to be making, retaining opportunity in some fashion until you get your next crop up and going, while at the same time protecting yourself from unknowns that can unexpectedly rock these markets. U.S. production will soon be behind us, and the trade will soon pay more attention to global demand and the production story unfolding in the Southern Hemisphere.
Volatility has broken after reaching multi-year highs this spring and it is once again relatively inexpensive to defend the marketing decisions you are (or aren’t) making, for this year as well as next.
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