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Here’s why grain markets could become even more volatile next week

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South American weather, new rules for funds, and China-U.S. meeting could impact markets.

The month of March has been a quiet trade start for many grain commodities. Not even the recent USDA report could coax corn and soybean futures out of their current trading ranges. Old crop corn and soybean futures continue to consolidate in a narrow trading range, waiting for some piece of fundamental news to justify the next price action.

Of course, with as tight as the ending stocks have become for old crop corn and soybeans, prices fundamentally have a difficult time to justify why a price move lower could even happen. With demand expected to remain strong for the remainder of 2021, should a technical price correction lower occur, there will likely be a large amount of buyers eager to seize the opportunity and buy the sale!

Yet at the same time, the new fresh bullish news has come to a halt, which is why old crop corn and soybean futures prices have not been able to take that next leap higher.

Short term resistance for May 2021 corn futures is at the $5.50 area, with next level resistance up at $5.72 (the price high after the February 9th 2021 USDA report). Short term resistance for May 2021 soybean futures is near the $14.50 area. Traditionally, seasonally, the month of March sends corn and soybean futures into a sideway to lower price pattern. Yet this year, the bullish underlying fundamentals are impossible to deny with basis levels in the Midwest screaming as proof that supplies for corn and soybeans are low and demand remains strong.

What will finally nudge corn and bean prices out of current trading ranges (either higher or lower) and when will it happen? Keep an eye on these three items for next week:

South America weather

Soybean futures took a nosedive on Wednesday this week due to better prospects for rain in Argentina to possibly occur late next week. Obviously, weather forecasts can change. With as parched as the Argentine soils are, if this rain does not occur, that will be supportive for soybean prices next week.

In Brazil, the rumors fly over the actual size of the crop. Twitter suggests that with recent rains in Mato Grosso, that as much as 7 million acres of soybean ground are underwater. We have heard that in some Brazilian soybean fields waiting to be harvested, the soybeans in the pod have turned to mush or are attempting to sprout (click here).

Then in the very next news piece, we are told that it is a record crop in Brazil, now near 135.131 million tons, up from February estimates of 133.8 million tons (according to CONAB). So which is it? A record crop, or a crop that had the potential to be record, but due to recent heavy rains has lost its potential?

The funds

According to the CFTC (commodity trading’s governing body), starting March 15, 2021, the traders and funds will be able to trade MORE grain contracts. The funds, or any trader, will now have more ability (because they can trade more contracts) to add length to their long positions, or when the fundamental tide turns, they could sell more contracts and push prices lower.

What does that mean? From my understanding, an individual fund group in the past has only been able to buy/sell 33,000 total contracts of corn. Starting Monday, that position limit will grow to 57,800.

NEARLY DOUBLE.

For soybeans, the limit was 12,000 contracts, and now will be 19,300. For wheat, it was 15,000 contracts, and now will become 27,300, also nearly double the original amount.

Which commodities might have the most opportunity for price reaction? Corn and wheat.

Let’s take it one step further. In the past, when the combined funds have been at their “longest” in the corn market, they have been net long just over 400,000 contracts. With these new expanded limits, you can see they now have the possibility to create an even longer position (or short position over time)! Price volatility in the coming months has the potential to be extraordinary!

U.S. and China meet next week

This will be the first official meeting between the two nations since President Joe Biden took office. Top officials from each country are meeting in Alaska on March 18 and 19. They will cover a variety of topics: climate change, Hong Kong, COVID-19, intellectual property theft, and human rights. The grain trade will be eager to hear if any talk is made about the Phase I deal or any new commentary about Chinese demand for U.S. agricultural goods.

Buckle up friends. We might have some wild markets next week. Think about the value of the crops in your bin, or for what you will be planting in the spring. What has my attention the most is this potential for bigger money flow coming into the agricultural sector; it is a big deal.

 

Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and naomi@totalfarmmarketing.com

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
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