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Thankful for Thanksgiving – and high grain prices

We are finally at price levels that if you want to lock in long term profits, you can.

Bill Biedermann

December 4, 2020

5 Min Read

Every family deals with issues. And although they vary from tragedies to challenges, they're all-consuming until we get through them.

Sometimes it takes a good doctor, good friend, good banker, accountant, counselor, community--- but it usually involves checking your commitment to faith and family.

This year was very challenging, especially if you have kids and a school that had to close. But we are very grateful that we had the chance to spend a LOT of time with family and re-learn how to make up fun and dumb stuff to do. And, we are VERY thankful that the markets reversed, and the U.S. is once again a major exporter of Ag commodities.

The relief from that stress helps us fully appreciate how stressed we really were. And so thankful we only have one month to get through and then 2020 is over!

Bulls never rest

Usually during this time of year traders slow it down and some take off from Thanksgiving until New Years, especially if markets have been bearish. Not so with bull markets. The ‘ol saying ‘gotta make hay while the sun shines’ is more appropriate.

Look at the last 10 years of front month soybean futures between Nov 30 and Dec 31. Overall the average move during the month of December is for soybeans to rally 16.8 cents, but if we isolate the ‘up’ years, the average move is actually 76 cents a bushel. Compare that to only an average 23-cent decline during the years we sell off.

Related:Fertilizer, fuel costs low, but for how long?

Thus, there is holiday cheer in bullish years and holiday time off in bearish years.

Historic perspective

Since USDA revised yield data up in 2014 and tariffs hit in 2018, it's pretty much been a downhill market. But this year's reversal of tariff policies caused a major draw on stocks, 2020 yields were off a bit after the Derecho, and light drought and prices have responded.

Good times ahead?

The period we’re in right now looks a lot like the 2006 to 2010 period. For example, the stocks-to-use ratio of soybeans was 19% in 2006 and by 2008 had fallen to 4.5%. Prices moved from $7 per bu. to $16 per bu. This year, USDA reduced ending stocks-use from nearly 14% in August to 4.5% in November, approximately the same size adjustment in just a 12th of the time. Thus, the market has some thinking to do.

Additionally, in 2006 the dollar failed at 92 and as it sold off, U.S. beans became very cheap to our export market. In 2008 there was a two bushel/acre yield decline, prices had to move more than normal in order to get the same rationing impact on demand and prices hit $16.

This week, the U.S. dollar fell below 92. With mass worldwide stimulus, the outlook for the U.S. dollar is further declines.

Related:Bull market offers reason to give thanks

What’s next

We have no idea what prices will do in the next four months. South American crops are expected to be big so they have to have good weather. If weather disappoints, more demand surges can be expected as nations stockpile.

If Covid vaccines work, we could see world demand for commodities rise. Yet, if prices move too high, then we will kill our own market with big acres.

But what we do know, is that we have so much to be thankful for. And what is happening in Ag right now should last a year or two, depending on future acreage reports. We are finally at prices that if you want to lock in long term profits, you can. You can manage the extreme risk with options and the yield risk with insurance -- if that makes sense for your operation.

And for those that are in the depth of the trench right now, there is always a way to work through your situation. Always. The sun will come up tomorrow, you will find another person to help as long as you are willing to ask.

Reach Bill Biedermann at 815-404-1917 or [email protected]


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The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Bill Biedermann

Hedging strategist, AgMarket.Net

Bill is a well-known speaker, presenter and commodities advisor. In addition to trading commodities for 40 years he has testified before Congressional hearings, CFTC hearings, served for the U.S. State Department AID and co-founded one of the largest IB Brokerage and Agricultural Economic Research firms in the U.S. Bill graduated from Illinois State University with majors in Agricultural Production, Ag Economics and Ag Education and farmed from 1973-1988.

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