Missed some market news this week? Here's the market news of the week.
Ag Marketing IQ
The pandemic remains a major catalyst for global financial markets. A global demand led by a surge in China’s purchase of U.S. commodities and the uncertain condition of the final U.S. crop being harvested have made for an extremely fragile fall for farmers. Those of us who have been involved in commodities have seen crazy years, but 2020 certainly takes the cake. Hindsight is 20/20 (pun intended), but let’s take a look back at prices from just two months ago.
Despite a big crop here in the U.S. and more than ample supplies, average basis levels are surprisingly decent. Even more noticeable for hedgers: Carry in the futures market is at very low levels. That’s making it more difficult for farmers to protect inventory they’ll store on farm into 2021 by selling futures or hedge-to-arrive contracts while they wait for the cash market to strengthen. Average corn basis ended last week about 25 cents under December futures, which closed above $4 a bushel for the first time since January.
The big news is that cash corn bids have surpassed $4 in parts of Iowa. This seemed impossible only a couple of months ago. In addition to continued price rallies, we have seen an extremely strong basis. Northwest Iowa has a historical basis of 43 cents under the futures price. It did not seem to fluctuate much from this up until last year, when record late planting pushed prices higher and lower production saw end users bid up for remaining stocks.
In the upcoming USDA reports it will be important to monitor global corn ending stocks. If USDA should show lower production in Ukraine, China, and even here in the United States, along with improved U.S. export demand, global ending stocks would likely decline from the current number of 300.45 million metric tons. It feels like the world already knows this though, hence the price rally, and strong export pace that started in August. With three quarters of the world’s corn grown in the northern hemisphere, along with strong demand and a South American crop that may not have record production due to adverse weather, the coming months may get very interesting.
At around Aug. 4, we settled the day with Dec corn at $3.20 ¼ and the processor who gets much of our grain here in central Illinois bidding 15 under for fall-delivered corn. Yeah, $3.05 for those who aren’t mathematically inclined. Fast-forward to October 23, the day I’m writing this. Dec corn is trading at $4.18, almost a cool dollar for a rally. There’s no way basis could improve when corn has rallied a dollar, is there? Well, the same processor I talked about bidding 15 under for fall-delivery is now bidding a nickel over the Dec. So now the cash bid is $4.23! This is the type of rally on futures and basis that occurs when we have a crop failure, not the kind we see with 178 bu./acre national yield.
Some wet weather blew through the Midwest last week, but it wasn’t enough to severely hamper overall harvest progress, according to the latest weekly crop progress report from USDA, covering the week through October 18. Corn harvest reached 60% completion through Sunday, jumping up from 41% a week ago but slightly behind trade estimates of 61%.
How is your harvest progressing? In Feedback from the Field, one Iowa farmer shared, “first time in 41 years I had to combine my corn cross ways because it was tangled so bad in one field." Just a few miles to the west, another local farmer reported yields of “170 bpa.” But Iowa farmers continue to barrel through corn harvest despite the obstacles due to the derecho wind damage. Iowa’s crop was 65% harvested as of Sunday, significantly ahead of 29% for the five-year average.
The latest weekly grain export inspection report from USDA, out Monday morning and covering the week through October 15, held another mixed bag of data. Soybean volume decreased slightly but remains relatively strong and adding to its already impressive year-over-year lead. Corn volume saw a modest bump, meantime, with wheat tumbling to less than half of last week’s tally.
Corn emerged as the big winner in the latest export sales report from USDA, moving substantially higher from a week ago and topping all trade estimates. But soybean and wheat volume decreased week-over-week, leading to some uneven technical maneuvering immediately following the report’s release.
Export sales were reported four days this week. Unknown destinations took corn and soybeans. Mexico took corn and soybeans, and South Korea took wheat.
The stars appear to be aligned for grain prices right now. Several contracts have crossed significant benchmarks this past month, including corn ($4), soybeans ($10) and CBOT wheat ($6) futures. A harvesttime rally is relatively rare, but it’s not totally unprecedented as we look at the historical data. But several supply and demand fundamentals have converged in recent weeks, giving grain prices a much-needed lift. The real question becomes – how sustainable is the latest rally? Is there enough bullish fuel to keep up the forward momentum, or are there signs it will soon fizzle? We dig into the details in this week’s podcast.
December corn futures matched yesterday’s 14-month peak this morning, supported by strong export demand – primarily from China. Planting concerns in South America and harvest worries in Ukraine due to dry weather continue to underpin strength in the corn market. Soybean futures wobbled this morning as increased rains in Brazil eased trader concern about planting conditions and ultimately yield forecasts. Some profit taking also ensued this morning after the November contract posted a nearly six-year high in Tuesday’s trading session. Wheat futures clawed back recent losses this morning on a weaker dollar and continued worries about dry planting conditions in Russia continue to throw 2021 yield estimates into jeopardy. Russia is expected to have dry weather continue through next week, though a few showers are on the radar as November begins.
Soybean prices sputtered most of Friday, but a late-session rally heated up prices and handed out double-digit gains by the close. Corn prices rose for the eighth time in the past nine sessions on continued export optimism, even as this year’s U.S. harvest hints at a massive production. Wheat prices continued to trade higher Friday on concerns over dry weather in the U.S., Russia and South America.