Weekly Market Update – January 8, 2021

New year is off to a great start in the grain markets. A common question I have been asked this week is what do we think the elections mean for our grain markets. A Biden presidency was not a surprise to the market this week. The surprise would have been if something happened to derail that. The market has been working on pricing Biden in since November. Tom Vilsack is a very pro-ethanol and pro-farmer agriculture secretary. He is very well known and has done a very good job for farmers.

The results of the special election in Georgia is new information to the market to price in. I do not think the selloff yesterday was due to this new information. The market and the economy do better with stability. Whether it is trending to the left or the right does not seem to matter as much as avoiding big sudden shifts in policies. Looking back through history, a lot of miscalculations and mistakes were made when one side had too much power. In my view, a very narrow majority is preferable to a large majority and I hold that view the same even when the side that I am more ideologically aligned with is in control. Right now, one side has control of the Presidency and both houses of congress but it is such a narrow majority that it will take complete agreement to get anything done. There are extremists in both parties, but no matter how much the extremists appear on the news, the bulk of both parties is still made up of moderates. Even after this election outcome, the moderates will balance out the extremists and Vilsack will advocate for us as farmers. We have much to be thankful for and hopeful for the future.

There may be some cynicism in this view, but China is not buying ag commodities from us right now to influence anything or to keep their word and agreement. They are buying from us because they have no other choice. We have the only beans and corn available in the world right now. They usually do not import much corn but they have to this year. They were buying it from the Ukraine when they were trying not to buy from us. Ukraine is out of corn and cancelling contracts. Argentina has banned corn exports until at least March and their crops are under weather threats. Corn is over $10 per bushel in China and going higher. China bought so many beans from Brazil that Brazil is having to buy beans from us and their crops do not look great.

We finally have many things trending in our favor. We have less supply of commodities. More demand and beneficial currencies. We do not have to worry about just one thing turning the other way. The Jan USDA report is coming out next Tuesday at 12 pm our time (11 am central). USDA kicked the can on the December report not adjusting US yield, Export demand, or South American crops. The market expects an adjustment on all of those things. We are looking for corn and bean US carryout to come down significantly and world carryout down due to crops in South America and more demand. USDA used to be the gold standard on US crops and world data. Private analysts have been doing a much better job of getting estimates and not as much weight is given to USDA anymore. Also this rally is being driven by not just the US crop, but lots of world factors that USDA is not the gold standard at estimating anymore. I do not think the report next week can hurt us. It may cause some profit taking by the funds which could give us a short term setback but until the weather changes significantly in South America or China stops buying or there is a major shift in currencies, I think we will recover whatever profit taking may happen next week. I also think if USDA leaves the numbers as is, like they did in the December report, the market will be quick to dismiss it, like we did in December.

What To Do
No big changes from last week. If you need cash for bills or to cover costs, you are not wrong to sell her. There is no shame in selling $6 corn and $14 beans. If you do not need cash right now and have most of your costs covered, I would continue to be patient. You can scale in sales, but I would sell small. As fast as this market has been rallying, even if we come in and beans somehow fall $1, we will still be higher than we were at the end of December. Do not sell any posted basis levels!! Bean basis has softened just a little bit with the Jan push but that should not last long. Trains have continued to run poorly and there have been basis levels from $1.10 to $1.60 in some markets. Be patient on new crop as acres are going to matter more than they have in a long time.

Wheat in Russia got a decent snow pack before the cold weather. US crop has had a lot of challenges but wheat still does not have the fundamental tailwind that corn and beans do. The strong move in wheat was as much due to politics in Russia and currency trade as anything. Wheat cannot let corn get out of sight without moving at all but i believe it will continue to lag. I would be getting some sales on above $6 if you have not done much or any. Basis this summer has more questions than we did earlier. With beans trying to get to $12 on new crop, any wheat that looks less than perfect is at risk of being killed to plant full season beans. That may change the basis levels this summer.

Cotton is looking for another big adjustment next Tuesday from USDA who is finally taking into account the poor crop in Texas that many people had been screaming about all summer. China is buying as the economy continues to chug higher. I would still be a seller of old crop cotton but not do a dang thing on new crop yet. Beans trying to get to $12 is no match for 76 cent new crop cotton. Cotton cannot afford to give up all its acres so it is either going to have to wake up and show us something or you are going to need to leave the picker under the shelter.