Weekly Market Update – October 23, 2020

Corn and beans show no sign of slowing down yet. Wheat and cotton have seen some hiccups this week but the trend still remains higher. Funds continue to buy futures contracts and China continues to buy our corn and beans. In addition to the normal supply and demand factors that we usually trade, there are additional factors that are finally all working in our favor. We have interest rates close to zero and monetary policy making additional liquidity available. There is so much money chasing returns right now and with fears of inflation commodities are very attractive to more classes of investors. Currency trades have also been in our favor. The US dollar is weakening against the Chinese currency and has stabilized against the Brazilian dollar. Argentina inflation is estimated at over 20% so everyone who owns commodities in Argentina is refusing to sell since that is the best hedge against inflation for them.

When times are at their bleakest (like as recent as this summer), it is hard to remember how fast things can turn. It is worth a quick reminder that when everything looks like it has to go much much higher, do not forget how quickly they can turn. I am not saying I see a crash around the corner. Quite the opposite in fact, I do see the possibility of additional upside. When things are going in our favor it is human nature to believe they will continue to go in our favor. The reason we sell even when we are sure it is going to go higher is because of how fast everything can turn. There are many end users who did not price this summer because they knew it was going lower. Do not get hung up on the sales you made that are under water now and ignore marketing. I am very optimistic about the future, but that same optimism also scares me. We scale in sales because there is no way to sell your whole crop at the top of the market. Scale in sales and buy calls on breaks! Noone knows where the top is until it is in the rearview mirror.

I have been writing for weeks that South American weather would be key to beans and the rain has not slowed them down much. Demand remains much too strong. Almost every day we get another sales announcement to China. Argentina will not be selling much until they feel better about their 20%+ inflation. Weather models are still predicting a strong La Nina year which adds to production uncertainty despite the moisture they have gotten. There has been enough rain to get the crop going, but it did push their crop late enough to give the US the upper hand until at least February. Our yield is dropping and demand is increasing and investment money has just added fuel to the fire. Beans sure seem determined to try for $11.

Basis and board are much higher than anyone was expecting when we started the year. Do not sell posted bids anywhere this year!! Basis should remain higher than historics all the way through harvest. There is a good crop in the Southeast but beans will try to be exported by any avenue possible. This will help all bids. Posted numbers for November are weaker than what we are trading now but I think it is very unlikely that basis will get much lower even during harvest. DO NOT SELL POSTED BIDS!! A run at $11 is far from a guarantee, so continue to scale in sales. Sell small amounts but continue to put orders at your objectives. It will not take much longer to see new crop start to need to get in on the action as new crop corn rallies. Keep orders working for new crop at $9.99.

It took corn a while to wake up because we had more of a buffer on corn and ethanol demand was still a big question. One of the big differences was such a large adjustment to last year’s crop. We finally got vindication on last years crop and reported yields for this years crop are not impressive. China continues to buy more corn. We finally got supply down enough and other demand high enough to help offset the ethanol concerns. All export and grain elevator capacity is dedicated to getting beans overseas right now so the corn crop is going in the farmer bins. Once it is in the farmer bin in the Midwest, there is nothing to push it out until next year. The market will have to work very hard to entice movement. That is one reason basis levels in the southeast continue to scream higher.

We have already seen more train hiccups and quick ship opportunities this year than all of last year. Same with beans, DO NOT SELL POSTED BASIS!! Get an idea of how much basis you want to gain in the bin and be ready to sell some at those levels. You do not have to wait until Jan to sell. If you get the right basis opportunity in Nov or Dec be ready to go ahead and move at least a little. Human nature kicking in here makes me think these opportunities will last all year. Logic seems to support that with so much of the crop in farmer bins in the midwest rather than in commercial elevators. However as stated earlier, things can quickly change so I think small sales should be made if you get an opportunity in your local market. Talk to us before selling any corn. No matter how good it seems when the buyer calls you, the next mill down the road may be paying more! Get some new crop sales on at $4!

A bull market needs to be fed every day. Wheat looked like it was running out of gas a couple times this week. It is impossible to distinguish between the market just taking a breather and the end of the rally until it is too late. Wheat is a political crop in the former Soviet Union. They will be very hesitant to sell any of last years crop that is in the bin until they see next years crop up and growing. The market is running out of time to get the crop up before winter dormancy. There was some rain in the forecast for the US plains and Russia/Ukraine. Wheat futures are at their highest level since Dec 2014. Hedge some new crop above $6!

US yields continue to disappoint on cotton and the general bullishness of commodities has helped to support. We have finally been able to break above the 70 cent level and seems to be holding. Rain in the Southeast has also delayed harvest and further threatened quality. Cotton needs to be sold above 70 cents!

Chinese Currency vs US Dollar (stronger Chinese currency makes our commodities cheaper to them)