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Ag Markets Indicating Demand Optimism

Corn, wheat, and soybeans have all experienced major price drops since June, and recently we’ve seen a recovery in corn and wheat, and stabilization in beans. This suggests, from a big-picture perspective, that the market is focusing its attention on demand and turning away from supply. It’s been a good production year, with current USDA projections estimating record yield and big acres. Consequently, supplies are on the rise, yet prices have basically moved in a sideways or upward fashion since late August when futures bottomed.
When viewing who is in the market, we see that large traders (called funds) have been aggressively short corn and wheat since late June. Funds have remained on the buy side of the soybean complex (long). End users, as indicated on weekly export sales and inspections, stepped up to the plate in late summer and have been taking advantage of multiyear low prices despite record yield projections in both corn and soybeans. Export sales have been brisk. Farmer selling has dried up on price drops.
As we look at the big picture, we see significant crop-production increases since 2012 when drought left the world short of inventory and prices were at record-high levels. As in a typical economic model, high prices cure high prices. This is done through less demand and more inventory. This is exactly what occurred in 2013 and beyond, as demand retreated and supplies increased with better crops. However, when prices pushed to near 10-year low levels on most futures contracts, the demand wheels have been in motion. Typically, this doesn’t show up in a quick fashion and is not a supply shock, as would be something like a drought or frost in which the supply can be changed quickly. Demand-driven markets have a tendency to gradually and slowly build. We believe the demand market is marching forward with now-record export expectations for soybeans as well as near-record sales for corn anticipated. The good news for grain producers, despite large near-term inventory, is that low prices are curing low prices. There is little room for error on future crops.
If you have questions or comments, or you would like help in creating a balanced strategy for your operation, contact Bryan at Top Farmer Intelligence (800/TOP-FARM, Ext. 129).
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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