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Thankful for Thanksgiving – and high grain prices

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

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.

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.

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 bbiedermann@agmarket.net
 
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading infromation and advice is based on information taken from 3rd party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you. 
The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 
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