Weekly Market Update – October 30, 2020

This week was a wakeup and reminder how quickly things can turn. This week has seen a washout in all commodities and all asset classes. Stocks, energies, grains, oilseeds have all taken a big hit. The US dollar has been trending higher (which puts pressure on grains). This selloff has been driven by the concerns surrounding the rising coronavirus cases around the world, lockdowns that have been announced (and additional ones that are feared) and all exacerbated by the uncertainty of the upcoming US election. The market does not like uncertainty on the political front and getting the election behind us and having a clear winner will be very beneficial. I believe that in the short term (next few months), getting the uncertainty of the election behind us will be more important for the grain markets than who actually wins. The prospect of a long drawn out process without a clear winner is more scary right now than either candidate. The rising virus cases and fears about additional shut downs I think are having a bigger effect but the negativity is being amplified by the uncertainty surrounding the elections. It will do us all well to get it behind us.

Soybeans have seen the worst selloff. In addition to the technical and outside market selling, there has also been rain falling in Brazil over the last few weeks and more forecast to come. The market seemed to brush off the rain when China was buying every day, but since the Chinese purchases have slowed down and the outside market pressure turned negative that has been brought back to the forefront. Argentina remains very dry so the weather is not all bearish. The spreads have been tightening up this week on the selloff indicating farmer selling even on the break. Basis levels in the Midwest, on the river and gulf have weakened indicating a slowing of demand, but those levels were at record high so the drop is not concerning yet.

I do not recommend panic selling everything on this break. It think there is enough additional demand and enough production uncertainty that as long as the outside markets do not completely collapse, we will still find support. However, if you feel undersold, I also do not think you are wrong to sell a little here even after this break. We are still much higher than we thought we could get this year. Everything here is a gift. Basis remains very strong. Do not sell posted bids! Processor and export bids are higher than we have seen this time of year. There is a basis push everywhere, even on small volume. Leave new crop orders working at $9.99.

Corn does not have negative weather to add to the pressure, but it is a follower of wheat some days and beans other days and both have been hit hard. Spreads have really widened back out also indicating farmer selling. Basis in the Midwest has weakened off the highs but have not backed off in the Southeast. Rail has not been very reliable and there have already been more rail delay basis opportunities in many areas of the Southeast. Ukraine has been our competition for feed grain sales and they announced this week they were appointing a commission to review the sales they had. It seems like they are looking to back out of the sales they have made. If they are doing this because they are worried about being short on corn, that is a sign of how tight feed grains are getting in the world now. This may be a play just to try to get higher price for the corn in which case it helps price too. This is a developing situation that will be closely monitored but no matter what happens it signals a shift of power from the buyers to the sellers. Not that long ago we were all going to have too much and the buyers held all the cards, now the sellers are starting to be able to name their price. We have not gotten much help on the ethanol demand but have added so much other demand that ethanol does not matter as much.

Some analysts have been recommending buying hedges back on this break. I agree there has been a shift from too much corn to much tighter but I am not as aggressive as to recommend buying back here. Historically $4 futures is still a very good sale and with basis you should be over $5. I do not want to take that lightly. I do think there is still upside on weather issues in South America and Chinese demand but those are far from given. Similarly to beans, I do not think this break calls for panic selling. I am not talking people out of making sales here if they feel undersold on this rally. I think we still have a shot to make new highs, but that is not a given. Get new crop orders working at $3.99!

The last two weeks have seen rain fall in both the Great Plains of the US and in Russia and other states of the Former Soviet Union. That has put some bearish fundamental pressure on top of the negative outside market pressure. Warm weather ahead coming will help wheat get some growth before dormancy. There are still production uncertainties about how much growth it can get before winter sets in. A stronger US dollar also added to pressure. New crop wheat remains close to $6. If you have not gotten any sold, I am still recommending sales here. Wheat rally is based on next year production shortfalls. Weather has turned a little better so that uncertainty has been reduced some now. The weather could just as easily turn back dryer but wheat is more at risk for a drop for fundamental reasons than I see with corn or beans.

The hurricane moved a lot faster than predicted which may have limited the damage to the crop in the Delta and Southeast. Cotton has been hit by the negative outside selling pressure that pulled the rest of the grains. Weakness in the stocks and concerns about the economy also pressure cotton. Moves back above $0.70 need to be sold.