Harvest not the only guide for grain prices

Joe Camp

Traders were shocked to see two consecutive bearish USDA reports in August and September. Industry estimates fell considerably short on corn and soybean yields in both instances, causing further pressure on a grain market that was already trending lower from July highs.

Joe Camp

There is still much to be sorted out regarding the disconnect between earlier trade estimates and the government numbers, namely the sharp divergence between crop condition ratings and the USDA’s survey-based yield predictions.

Whether the future USDA estimates come down toward industry consensus is yet to be seen; however, changes to yield will probably not be thought large enough to take away from the fact that U.S. farmers will together haul in a big pair of corn and soybean crops. The price direction going forward may quickly shift away from projections for supply and toward the prospects for demand.

Grain export programs are performing well as of late. China is an active buyer of U.S. soybeans at a time when most business was expected to go to Brazil. A softening dollar and the resulting shift for terms of trade between U.S. and Brazil help the bean trade business. U.S. corn is not priced competitively relative to most other major sources, but the dollar’s decrease against the Mexican peso has turned our neighbor south of the border into a large buyer.

The importance of South America’s market influence will only grow into the winter. Traders are watching dry weather in Brazil and wet weather in Argentina because of some worries early in the planting season. Worsening conditions have the potential to spark significant market rallies while improving weather would help the bears remain in control.

The adage that ‘low prices are the cure for low prices’ will possibly be invoked during the coming months as end users step in to take advantage of a down market. Outside of increased export activity, corn ethanol and feed use can improve in response to low prices, as can soybean crush demand.

U.S. politics exert frequent influence on the market and should be considered. The verdict is out on whether grains will benefit from President Trump’s promise to rebuild the country’s trade agreements like the North American Free Trade Agreement (NAFTA) and Korea-U.S. Free Trade Agreement.

North Korea remains a wildcard after several tests of the country’s nuclear missile capabilities leave investors fearful of a war that would potentially diminish participation across the global financial markets.

Traders also may shift capital among the stocks, bonds and commodities classes depending on the outcome of the White House’s tax and budget reform efforts.

The Midwest harvest is in full swing and most will enjoy the bounty of large corn and soybean crops; however, traders will be expected to turn their eyes toward the prospects for demand and the potential shocks that may come from other influences outside of supply.

Camp is the risk management specialist for AgriVisor, one of WFBF’s member benefits.