Weekly Market Update – November 13, 2020

The USDA report remains the most important fundamental factor for the week. USDA continues playing catchup from the last year and a half. They have been slow to adjust the 2019 crop smaller, slow to raise export demand and slow to adjust 2020 crop yields lower. They were also slow to lower ethanol demand, but that is not nearly as important now that we have added demand. The market expects USDA to continue lowering the yield for 2020 crop soybeans and corn on each report going forward. The fundamentals for corn and beans have completely changed now.

There are still court challenges and recounts to work through, but right now it appears that Biden’s margin is wide enough to overcome the instances of fraud being made public now. Unless some new evidence of more widespread fraud comes out very soon it appears a new president will be sworn in on Jan 20th. We need to start thinking about how a Biden may affect the grain market. The current administration has not been a friend to ethanol. Only when he was slipping in the polls in Iowa did President Trump take a stand on the refinery exemptions to support ethanol and that was only a temporary move which may be reversed. It has been reported that former USDA Secretary Vilsack is advising Biden on agriculture policy which will be a good thing for farmers and for ethanol as Vilsack was very pro-ethanol. A question that may be more important than ethanol policy is how a Biden administration is going to handle China. The biggest fear is that he will give in to any of their demands. Trying to be optimistic, I can make a case that he has something to prove and may be tougher on China to prove his family is not on the take. Regardless of all of that, specifically for agriculture China has little choice right now. They are buying from us because of how desperately they need grain and oilseeds. We are the cheapest but also just about the only one in the world with inventory right now. The world balance sheet and currencies matter more right now than geopolitics. Or it may be more accurate to say that the world balance sheet (and China’s needs) are driving geopolitics and currencies right now.

A down day like yesterday is healthy for a bull market. It helps the market keep from getting too overbought. The challenge is that you do not know if it is just consolidation before the market goes higher or the tide turning until we are looking at it in the rearview mirror. Fundamentals still look very supportive in corn and beans. Wheat and cotton are a question mark still.

1.7 billion bushel carryout does not take much rationing, but it does not have to get much lower than that before we will. If it stays at 1.7 billion, $5 corn on the board is a long shot. What the market is trying to determine is how much of a risk premium do we need to capture the production risk in South America and Chinese demand. If we start trimming South American production, the market is going to react quickly. This summer we had a buffer, now we do not. New crop acres are now much more important as well. That is why the new crop contracts have finally woken up. They did not fall as much on the pullback yesterday.

Corn basis in the Southeast is very explosive. We have seen basis values as high as +1.50 and we are barely out of harvest. Be ready to sell some basis if you get an opportunity close by. Do not sell posted basis levels anywhere! I would have sales targets working above the market on old crop. Get a little done on new crop above $4, then be patient.

Corn carryout levels do not require much rationing, but bean carryout at 190 million will. And the bean carryout may get even tighter than that. Beans are going to be explosive on South American weather and they are going to have to fight for new crop acres. Nearby beans were down double digits yesterday, but new crop was unchanged. That is signaling the acreage fight ahead. Beans have added back carry to the market as they are going to need to ration demand all year rather than just get to South American harvest.

Basis is very strong on beans. It is hard to remember a year when the lines at the processor were this short in mid November. Do not sell posted bids! Get a few new crop beans done above $10, but be patient on doing a lot.

Russia has increased their export quotas but the world price is still holding steady. Production issues have mitigated around the world. We are not nearly as tight on wheat as we are corn and beans. Wheat may find its way in the feed ration if corn rallies enough which will help the wheat balance sheet and reduce corn usage.

I think we should be more aggressive on wheat than we are being on corn and beans right now. Hedge new crop wheat above $6!

Cotton is not getting much increased demand like the other grains. USDA left carryout very large. Harvest pressure is pushing the market lower but equity rally is trying to help support cotton. I am still a seller on moves about $0.70. Cotton is going to struggle unless something major changes soon. Be patient on new crop as the grains should take a chunk of cotton acres. The question is whether they can take enough to pull stocks back to light levels and we still have a long time to go before we will know that.