Unexpected Times
May 12, 2021
This year’s price action has been one for the record books, and the year isn’t half over yet. I am writing this article three weeks before my retirement, and I keep looking for past years where the price action is similar, and there are none in the past 40 years. We are in uncharted waters. As I am writing this article, we have prices at the highest level since the drought year of 2012. It is also the highest price we have had without a significant weather problem in this country. This rally is partially due to some weather problems in South America, but not weather problems that would send the market this high. The reason for unprecedented price action is basically because of record demand from China after the trade war ended for corn, sorghum, and soybeans. Which has created a demand lead bull market that started last August and has not finished yet. The question is, what happens from here?
The grain markets this year will be susceptible to any weather problem. The problem is we are already at levels -$15.00 for soybeans and $7.00 for corn that typically ration demand in past years. We also have nearby corn higher than wheat prices. These things usually end a bull market and have proven to be not sustainable over the long term, so advise this word of caution. Other indicators, strong cash markets, ethanol, and soybean crush margins that are still profitable point to a bull market that still has not found its top.
What I would say is simply this- the price risk is more significant than it has been in years. If the growing conditions this summer are good and prices do not get much higher, we will probably have relatively solid prices for another year if China keeps up on this buying pace. The USDA predicts a rather tight balance sheet for next year, particularly for soybeans, so we will spend next winter sensitive to South American weather. If the weather is less favorable, we will probably go sharply higher for the following crop year, to a level where demand destruction will begin. Part of the unknown is how much have these high prices already slowed down Chinese demand. From sitting in my office in Beaver Dam, this does not look like a lot, but this all spells another year of volatile prices at relatively high levels. The thing is to respect the risk when marketing. Do not sell too much of next year’s crop but sell some at these historically high prices.
The grain markets this year will be susceptible to any weather problem. The problem is we are already at levels -$15.00 for soybeans and $7.00 for corn that typically ration demand in past years. We also have nearby corn higher than wheat prices. These things usually end a bull market and have proven to be not sustainable over the long term, so advise this word of caution. Other indicators, strong cash markets, ethanol, and soybean crush margins that are still profitable point to a bull market that still has not found its top.
What I would say is simply this- the price risk is more significant than it has been in years. If the growing conditions this summer are good and prices do not get much higher, we will probably have relatively solid prices for another year if China keeps up on this buying pace. The USDA predicts a rather tight balance sheet for next year, particularly for soybeans, so we will spend next winter sensitive to South American weather. If the weather is less favorable, we will probably go sharply higher for the following crop year, to a level where demand destruction will begin. Part of the unknown is how much have these high prices already slowed down Chinese demand. From sitting in my office in Beaver Dam, this does not look like a lot, but this all spells another year of volatile prices at relatively high levels. The thing is to respect the risk when marketing. Do not sell too much of next year’s crop but sell some at these historically high prices.
Doug Marshall
Grain Merchandiser
David Cramer
Filed Under: Corporate News, Grain