2020: Par for the course (Grain Marketing)
(Editor’s note: By Rob Davis is a market advisor with Nagel Farm Service.)
I guess that we shouldn’t be surprised that one of the most predictable seasonal trends in the grain markets has gone the opposite direction this year.
Any selling pressure as we head into harvest has been met with buying. While the corn market has staged an impressive counter-seasonal rally, the flat price is still not that impressive.
On Sept. 10, the December corn contract closed at $3.65, which is 45 cents off of the lows put in just one month ago.
The tone of the market has definitely changed as export sales have been on a steady increase, with China putting multiple sales on the board, which is the first time that they have bought U.S. corn since 2017.
The Chinese corn crop has had a difficult year, plagued with army worms and flooding pushing the domestic price significantly higher than imported supplies.
People would like to believe that China is trying to make good on the trade deal, but that is a hard argument to win when prices are at significant discounts to recent history.
Additionally, the Chinese government has stated that the recent pandemic has helped them realize that they should be better prepared with larger strategic reserves.
One analyst suggested that we could see unusual Chinese demand as they will soon be on the world stage hosting the 2022 Winter Olympics.
Just over a month ago we were predicting a record yield here in the United States, which has slipped away with the devastating derecho and lack of rain, both of which hit one of the largest corn-producing states in the United States — Iowa.
Some analysts have taken more than 4 bushels per acre off of their estimates for the national yield average.
On Sept. 10, the November soybean contract closed at $9.77 1/2 after an impressive $1.10 cent rally since early August.
The soybean market has been dominated by Chinese buying over the past few months.
The strong demand and potential production issues created by the lack of rain in the Midwest could continue to push the market higher — especially after we get harvest behind us.
On Sept. 10, the December wheat contract closed at $5.48 1/4 and the July 2021 wheat contract closed at $5.62.
Again — I expect wheat to keep us on our toes as it is the most sensitive to continued dollar weakness.
The dollar index has fallen over 10 peercent, from 104 to 93, which seems to finally be adding some upward price pressure to the grain complex.
If the dollar weakness holds through harvest, we should see it continue to translate into higher prices as we approach the end of the year.
We are beginning to hear the financial analysts talk more and more about wanting to use commodities as an inflation hedge within their portfolios, which would be some welcome buying pressure during a period that is usually dominated by sellers.
(Rob Davis is a market advisor with Nagel Farm Service. He can be contacted at Rob@nagelgrain.com or 410-822-6300. Nagel Farm Service has been serving farmers since 1946 and offers Grain Merchandising, Crop Insurance and Risk & Profit Consulting services throughout the Mid-Atlantic region).