Farmers, strap on your seatbelts for the market ride, analyst says - Successful Farming

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What a week!  

Soybeans dropped $1.18 per bushel from their highs last week, with corn down 40¢. Both markets dropped below their levels before the bullish January 12 USDA report.  

The sky is falling! Chicken Little analysts who have been calling for a top forever (since $10 beans and $3.60 corn) are still crying, “The sky is falling!” Only, nothing has changed fundamentally in the past week, other than the bullish report finally convinced many it was time to buy grains.  

So, is the top in? Or did we just kick out a lot of weak hands from the rally, which means we’re ready to go higher?  

The way I see this market long term, we have a long way to go before we top this market, and it could last another year or two before we finally break lower. We seem destined to find $16+ soybeans and $6+ corn, before the dust all clears, but when is still the question.  

No real technician can look at long-term charts and say the top is in, only the Wrong-Side Randys of this world will be doing that. However, the top could be in for the next week, or month, or even longer. Clearly, the long-term picture is headed higher.  The response, so far this week, doesn’t change that picture, as we’ve bounced back nicely.  

But anyone who thinks we need to rally $1 every month in corn (like we did in December/January) will be sorely disappointed; it takes time to turn around the Negative Nellies of the world, and that’s what the market has been doing. But markets trade every day, meaning someone has to sell and someone has to buy every bushel.  

Informed people say the market makes an equal number of trades right and wrong every day, but not an equal number of traders. (The majority usually lose and minority make money.)  

Another person stated it another way: “The market’s purpose is to make the most number of people wrong every day.” And in my observation, it is very good at doing just that!  

Weather forecasts continue to suggest below-normal precip in central Brazil, and more normal precip in Argentina the next seven days. Temps will be normal in Brazil, but above normal in Argentina. So, that is somewhat still a problem for many areas. The eight- to 14-day calls for normal precip in western and southern Brazil, but below-normal precip for the central portion again. Argentina is also forecast to have below-normal precip, so that continues to present a problem, especially since Argentina has above-normal temps forecast as well.  

The problem is, the whole year has been dry (especially December) and that leaves soil moisture levels lacking at the most critical time of the year.  

Weekly U.S. corn exports were 55 million bushels (large) this week, and for the year-to-date they total 757 million bushels (mb) vs. 400 mb last year. The trade seems to think that U.S. corn exports will be 250 to 300 mb larger than USDA, and ethanol and feed use more as well. So, corn carryout will be 1.1 billion bushels, not 1.5 billion like USDA’s last laughable guess.  

Expectations are that the U.S. farmer had lots of Wrong-Side Rand' market advisers selling grain early/cheap, as 80% of the corn is sold and 7% of next year’s crops are at very low prices. So the trade owns most of the crop – bullish!  With last week’s correction, those who bought back should be mostly be out again due to margin calls, as well. 

Weekly soybean exports at 73 mb were also very large – season to date at 1.664 vs. 927 last year; trade thinks total soy exports will exceed USDA by 150 to 225 mb – and we only have 140 mb carryout now! 

Could we see a negative carryout? 

We need 90 million acres in 2021 and the trade still thinks we’ll only have 130 mb carryout next year with the expanded acres, too. Translation: The $2 discount for new crop is unjustified!  It’s estimated by traders the U.S. farmer is 80% to 85% sold on 2020 soybeans and 5% to 7% new crop 2021; Pro Ag thinks its closer to 95% sold old-crop soys and 10% to 20% new crop.    

U.S. wheat exports last week were 19 mb, with season to date 591 mb vs. 595 last year. The world doesn’t need our wheat and isn’t willing to pay for it. That’s why farmers will shift 5 to 7 million wheat acres to corn/soy this coming year – and then wheat fundamentals will finally improve (especially HRS wheat).  

USDA rates the Kansas crop 43% G/E (46% Last year); Colorado 17 (19% LY), Oklahoma 61% (36% LY), and Illinois 65% (50% LY). However, good rain/snow this week across Colorado, Kansas, Oklahoma, and Texas will help the crop. Wheat is still the laggard and for good reason. But once we are through planting the 2021 crop (less wheat acres), wheat fundamentals will improve dramatically.  

There is now no question –- 2021 will be much better for farmers than 2020. The trade position of the U.S. has improved immensely the past five years, and the U.S. farmer went through the pain of confronting China (backed by Trump dollars) - and “phase 1” of the trade agreement. Trade is up all over the world (Mexico, Canada, Japan) and anyone could sign a favorable Ag trade Agreement with the UK (which should soon be coming). After all, they’ll be buying U.S. ag products for about half price from their former EU suppliers – who couldn't make that deal? 

So strap on your seatbelt, it’s going to be a fun ride!

Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country.  

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Farmers, strap on your seatbelts for the market ride, analyst says - Successful Farming
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