What will break the sideways trading pattern?

By Jon Scheve, Superior Feed Ingredients, LLC

Throughout October, of the possible 21 times, the soybean board traded $13.83 18 times. Corn traded $6.83 19 out of 21 times. Clearly the market is in a sideways trading pattern and is searching for a reason to move higher or lower, but there are several variables impacting market direction.

Ukraine grain corridor

The warring parties in Europe agreed to a 120-day grain export corridor in the Black Sea that will end in mid-November, unless an extension agreement is made. Russia has indicated it is not happy with the current arrangement and will not renew the agreement.

Without an agreement, there will be less grain available from the Black Sea region and a futures rally would be expected. On the flip side, should a deal be brokered, and a continuation of the agreement put in place, it could put downward pressure on prices. 

U.S. export pace

Soybean’s current export pace is running ahead of what is needed to meet USDA expectations. It is too early to tell if this pace will continue into the first quarter of 2023, especially since Brazil is expected to raise a very large crop this year. Corn export pace is the opposite of beans, which may mean the export estimate reduction for the marketing year is warranted. However, if livestock feed numbers are at least 95% of what they were last year, there is still plenty of opportunity for U.S. feed markets to make up for a sizeable export decrease.

South American Weather

It is probably a little too early to worry about drought conditions in the Southern Hemisphere. However, Argentina has been extremely dry, which has pushed back early planting and may eventually mean lower yields at harvest.

Brazil raises 75% of their corn production during the second crop, which is planted in February. That means there is a lot more time left to watch weather patterns and determine if La Niña will end soon or last until the heart of Brazil’s growing season.

Brazil’s bean production will be impacted the most by precipitation in December and January. Any dry weather threat could mean explosive price potential, while normal weather would likely mean a steady slow drop in prices for several months.

Basis markets

The basis market is on fire in the Plain States. Last week, basis values delivered to the Texas panhandle hit +200 and a central Nebraska ethanol plant started trading at +70. Normally, basis levels in these areas are 100 cents less than what is currently trading. 

Basis values in the east may have found a floor slightly higher than normal for harvest. Plus, the Mississippi River issues may start getting resolved, as harvest is nearing the end and there is a lot less grain left under immediate pressure to find shelter.

This past week also saw bean basis begin to improve in the western part of the Corn Belt as soybean harvest is complete. After harvest, it may be difficult to motivate farmers to sell their stored grain throughout the winter, which could help push basis levels even higher. 

Bottomline

Historically, when carryout is tight as it is this year, the futures market usually rallies after harvest is complete.

The market is dealing with the southwestern part of the Corn Belt being out of corn, while the eastern Corn Belt has more than it can use. Difficult logistical problems due to dry weather and expensive fuel and freight costs are only perpetuating the problem. Add to that a world economy that is concerning everyone, and the market is left with more questions than answers and a sideways trading market. 

The news this weekend of the grain corridor getting shut down by Russia could be the catalyst that helps the market break its sideways pattern.

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.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

Check Also

Farm aid for Ukraine

By Matt Reese Despite the risks and hardships of war surrounding them, Ukrainian farmers are …

Leave a Reply

Your email address will not be published.