The big picture
Often we get caught up in the detail of the daily news and miss the big picture of the overall development of the market. That might be the case today, where the outside markets and fund buying to protect against some anticipated inflation are having huge impacts on grains - even more than the fundamentals of grains themselves.
Gold is rallying to new highs almost daily as gold is one commodity that has continued to rally on very little news at all. Gold has simply become the favorite child of speculative buying, and it appears gold is headed much higher as it didn't participate so much in the 2006-2008 rally of many of the other grains. Silver is following suit, and the dollar is complying by pushing lower and allowing all other commodities to see upside potential regardless of their individual fundamentals.
This is creating an environment that is allowing grains to rally in spite of improving weather and relatively decent harvest progress in the past few weeks. Soybeans are on the verge of rallying to new highs, and most corn contracts are at or near new highs as well while wheat is also rallying.
89% of the soybeans and 54% of the corn was harvested as of Monday, Nov. 17 so the harvest progress is improving considerably. That is making up for a lack of harvest progress early, and it is encouraging to the weather worriers as harvest has expanded nicely in the past 2 weeks. With warm and modestly dry weather forecast to continue for the near term in many Corn Belt areas, we just might get this crop harvested yet.
Revised USDA projected yields are now indicating record large yields for both corn and soybeans, a surprising development that at the beginning of the year would have pressured market prices. But today, the expectations seem to be of an improving economy, and therefore an improving outlook for markets which before had been struggling to maintain decent price levels. And a cautionary eye seems to be tilted toward future inflation.
Now we are approaching $10 soybeans for multiple years, $4.50+ corn for multiple years, and $5.50 or higher wheat prices for multiple years. That leaves us with acceptable price levels for producers, where they can cover their costs and make some profit at current input costs.
Inflation is an insidious thing, something that creeps up on people and makes them make different decisions than would normally take place. Today, inflation is having an impact on markets, and so far inflation doesn't even seem a threat to the market looking back. In fact, deflation has been a greater concern of markets than inflation has been. Looking forward sometimes can be much different than looking back. These are futures markets, and the futures market currently is acting like inflation is the next big thing expected to hit markets.
So in the big picture, markets are rallying on a future concern of inflation, with all the signs of an inflationary environment expected to occur in the next few years (higher metals, lower dollar, other commodities rallying with no apparent fundamental support). But that doesn't mean it can't continue to occur, and for now, the rally is alive and well.