Market volatility ahead

By Jon Scheve, Superior Feed Ingredients, LLC

Market volatility is expected to continue for quite some time. Much of the 2020 U.S. corn and bean crop has been sold and China’s demand remains impressive. Even South American farmers have sold 50% more of their new crop beans than usual by this point. Therefore, many are uneasy about shorting the market as it’s unknown who is left to sell into this rally. 

Corn

China purchased a lot of corn recently, so the market now expects upcoming USDA reports to show increased export values and lowered carryout. Corn may need the price to rally to help ration what is left until harvest.

South American weather has turned from dry to wet. Parts of Brazil are experiencing bean harvest delays from the wet weather that could push back their second corn crop planting. This delay could push corn pollination on the second crop into late May when weather is drier and reduce yields. Argentina has had adequate rain in the past week or so, which should stabilize yields. However, there will still be dry pockets, so final yield estimates are unclear.

Once our beans are moved out in February, U.S. corn export pace usually picks up in March and lasts until about the 4thof July when South America’s exports are hitting their stride. This could mean increased demand for cash corn in the upcoming months. 

With higher prices, some domestic end users will need to curb usage. Alternative feed sources, like wheat and feed by-products, have had demand and price increases too.

U.S. corn prices continue to be the most economical globally. Spreads between futures contract months are very narrow or even inverted, indicating grain is needed now not later. Also, basis values have traded off the low levels from a couple weeks ago as end users search for more corn in the coming months. These factors could be indicating higher prices as spring approaches.

Beans

Brazil planted beans a few weeks later than normal last October. This is pushing their harvest back into February and has caused a need for more U.S. exports for this time of year.

The latest USDA report showed the tightest carryout in over 20 years for a January report. If there aren’t any sizeable cancellations in the exports, the U.S. could essentially be out of beans by mid-summer. With a large portion of the U.S. bean crop already exported, large cancellations are becoming less likely. This could mean that we need higher prices to ration demand of the beans still left in the country.

Soybean meal demand continues be strong as processors grind at a record pace. Indications suggest U.S. processors have enough supply to cover needs through May. However, their summer needs and coverage are very uncertain.

Demand market

Chinese demand for corn out of the U.S. this season could be four times larger than any previous year in history. The demand is likely a combination of China’s ramped up hog production in confinement buildings at a pace faster than many in the trade were expecting, as well as a drop in yields at the end of their growing season. 

While both corn and bean demand has been unexpectedly large, many other commodities like metals, energy and other grains are also experiencing large rallies at the same time. This could be from a weak U.S. dollar and the potential for inflation in the general economy. This increased demand may last longer and cause prices to remain higher than those of a weather driven market rally.

The market will likely not go straight up. Instead, volatility like this past week where prices traded up 10 to 20 cents and then down 10 to 20 cents in the same trading session with little reason or explanation will continue. Time to buckle up because it’s going to be a bumpy ride.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

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