The winter doldrums for grain markets
The corn and bean markets seem to have entered a dull, sideways type trade after the January crop reports. In some ways, the market feels like the other shoe is ready to drop. Let’s just say the first shoe dropped in 2013 and finished dropping with the January crop report data.
Most market participants admittedly are looking for the next price level to be lower, based on the outlook for 2014 crops to be larger. Plus, rains in South America have lessened concerns about crop size for that hemisphere. The US soybean situation continues to be the tightest of the major crops, but chatter about switches of Chinese purchases of beans from the US to Brazil is also a damper on prices.
For the time being, it is a slow news kind of market. No big government reports, no news on the RFS, no more index fund re-balancing, no US crop growing, etc. Maybe there are winterkill issues to watch in winter wheat. Plus there is the rest of the South American season—their February is like our August, so it important for soybean seed fill.
There has been a move in the corn futures spreads in the past two weeks of trading. There has been more and more bull spreading going on in the corn. This means the nearby prices have gone up compared to a more deferred month. For example, the day of the crop reports, March futures were 15 cents under the July futures. This has moved to 11-12 cents. It sounds like a small move, but elevators holding hedged inventory are more likely to sell as the spread narrows. Basis levels are also key.
If there’s a downside to the sideways market, it is that farmers may get complacent about grain marketing. That’s not a good thing if the other shoe drops.
If there’s one topic in the market which is exciting, it is the swirl of discussion around the Argentine peso. Currently, Argentine farmers are holding a lot of old crop beans as an inflation hedge as the value of the peso declines. Since beans are traded in dollar terms, the physical beans have been increasing in value. Talk now centers around how the Argentine government will solve this problem, with many traders remembering the massive devaluation in 2001. If there is a devaluation, after the dust settles, the farmer would be able to sell his beans and get more pesos than the current official exchange rate.