Soybeans hit a wall several times at $12. Once they pushed through, they have not looked back yet. We made it to the next target at $12.55 in just a couple days. The crazy thing here is that there is very little new news. The newest headline we have to trade on is the port strike in Argentina but that has been going on for over a week now so it is not exactly brand new. This market has a tremendous amount of momentum. It has momentum from all directions, supply side, demand side and outside market influences. All three of those factors is why this rally has been so spectacular. A rally on just one of those things can quickly turn and give back all the gains. It is going to take a very large shift in a lot of things to see beans back at $9 very soon. I am not saying it cannot happen because we all know that it can, but right now there are very slim odds.
Agriculture commodities have not been the only commodities to see a meteoric rise. Industrial metals, precious metals, crude oil have all seen pretty spectacular rallies. We do not follow those other commodities as closely to be intimately familiar with their fundamentals but the advantage the ags have right now is that in addition to the inflation risk that is pushing all other commodities higher, we also have very tight fundamentals on both the supply side and the demand side. We have way more demand than we dreamed possible. We have a correction to last year’s balance sheet that we had all but given up hope for. We have a smaller US crop than we were counting on due to late season dryness, and we have a shrinking South American crop.
What To Do On Corn and Beans
There are going to be setbacks in this rally. We are only a week past soybean’s selloff back to $11.50 and when it happened, many people were concerned the rally was over. Do not be alarmed on another correction. As long as you have the bulk of your costs covered and your space figured out, I would be patient from here. When the market hits price levels you have had in your mind ($13 cash for example), do a little bit. You do not have to sell everything at one place.
The market has a lot of work to do. It needs to ration old crop demand and encourage new crop acres. Nearby is much higher than new crop in both corn and beans. That was fine when this was just a short term issue. Now that both demand and supply have moved more bullish it’s going to take more to correct. I look for old crop and new crop spreads to work the other way. New crop should start gaining on old crop as the market starts to focus on new crop. New crop beans are 1080+. New crop corn is 420+. You would not be wrong to have a few orders working on new crop but I would not go crazy. I would be patient on new crop as well. In the last 4 or 5 years, the best sales we made for new crop were this time of the year. I am not saying that to say we should sell everything right now, I just want to remind myself as well that we need to be careful when we think the market cannot go lower.
Corn and bean basis is very strong. Do not sell posted bids anywhere!!!
Wheat
Soybeans may start taking spring wheat acres and helping reduce the wheat balance sheet. Wheat has been a lot more comfortable on carryout than corn and beans but that could change. Wheat also has the added advantage of being a political crop in the Former Soviet Union and therefore if the run on commodities continues, governments are going to start holding wheat in reserves and further reduce available wheat. We do not have near as much wheat planted as we should have just based on price. The wet weather did not allow it. New crop basis has actually moved a little higher. I would still encourage some hedges above $6 futures if you have not done anything yet.
Cotton
Cotton has had a wild ride. It is following the outside markets more than the other commodities. The dollar was higher earlier in the week and cotton dropped significantly while the other commodities were able to shake it off. As long as you have sales made at these levels, even if they are small. I would be holding out for 79 for additional sales. USDA Jan report may give us the next leg higher on cotton and the Chinese economy seems to be growing steadily.
I hope everyone has a very Merry and safe Christmas!
