April 30, 2020
Here we sit. It is the end of April. We as a nation have been in quarantine shelter at home for over a month. We have seen commodity prices fall to levels not thought possible. We have seen our government stretched and tested. We have seen our resilient farmers dump milk and euthanize hogs. We witnessed the closure of packing plants, only to then have a presidential declaration to re-open them. Farmers are planting at a swift pace even as Americans are driving less pushing energy demand down and leaving ethanol plants to either slow production or close. Corn prices have gone down to $3, wheat futures have dropped sharply, and soybean futures may be inching toward $8 with looming threats to potentially drop lower. Is all of the bearish news priced in? What hope do we have for a rally?
Thursday, April 30 is first notice day for May futures
The reason first notice day is significant is because any traders who are holding long futures positions in the May grains need to have exited long positions before this date, or be at risk of physical delivery. Sometimes in the two weeks between first notice day and last trading day for a futures contract, prices can become quite volatile. Or, prices can sit in a lull. Just depends on actual physical demand for a commodity (think crude oil recent price drama). We will be interested to see price action in the days ahead.
The U.S. dollar is finally moving lower
With the shock of the economic turmoil factored in for now, the economic markets seem to have stabilized for the moment. Yet, we wonder how the U.S. and global economy will recover; quickly, slowly, or somewhere in between. The government may make the step of printing money, which ultimately can lead to currency devaluation and eventually inflation. The U.S. dollar has fallen 2% off its highs in late March, but it needs to fall further if it is to be of benefit to our export markets (remember a lower U.S. dollar makes it cheaper for other countries to import our products based on the currency exchange rate). While a 2% drop is helpful, it pales in comparison to how much the Brazilian currency has dropped during that same time, nearly 12%! The extreme discount of the Brazilian Real is a large reason why Brazil has gained so much export business in recent months. Brazil is forecast to export 8.8 million tonnes of beans in the month of May. Half of those soybeans are destined for China.
Be ready for any price scenario to occur
While we look at grain prices and hope that a seasonal price low will occur soon, hope is not a strategy. Are you ready with your marketing strategy should $3 support fail in corn futures leaving $2.75 as the next potential short term target lower? What if beans break below $8? It might be worthwhile to take another look at put option strategies to be prepared just in case. Yet, if we receive any friendly news in the weeks ahead, prices might rally even higher than anticipated, and you should be mindful of targets for cash sales. It seems like the marketing volatility will likely continue for the remainder of 2020 as we come to understand supply and demand scenarios, the global economic recovery from COVID-19, and get through a likely heated U.S. presidential election.
Reach Naomi Blohm: 800-334-9779 and [email protected]
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.
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