End of Market's Bearish News Near, Analyst Says
Happy New Year!
The farm markets have been relatively quiet the past few weeks, as the holidays made trade relatively light as is typical this time of year. As we look forward to a new year, hope springs eternal for grain prices to recover and give us a chance to actually turn a profit. Farmers are still waiting for that opportunity to sell the grains produced in 2016 and those yet to be produced in 2017.
We are really in a neutral area for prices, as we saw bottoms in many grains in August for crop year 2016. Corn price lows hit the week of August 12, about 40¢ below where we are currently trading on the continuous charts. Soybeans and wheat made similar lows (with wheat a bit later the week of September 2). But soybeans are almost in a different world than corn and wheat in that soybeans never got close to the 2014 lows, while wheat is lower and corn basically ran only about 6¢ below those 2014 lows.
Soybeans, however, made lows of $8.44 in 2014, and the lows in 2016 were closer to $9.40 or just below it. So, soybeans are still the bright spot in grain prices today, if we have a bright spot, as corn and wheat prices are well below break-even levels for many producers.
Today, Chicago Board of Trade wheat is still within 20¢ of its 2016 lows, and KC wheat is within 30¢ of its lows. Minneapolis wheat is about 50¢ above its lows as the HRS variety has a bit more demand for it than the winter wheat brands, which have plentiful supplies at this point.
Corn is within 40¢ or so of its lows, and soybeans after recent price weakness is within about 50¢ of its 2016 lows. So, while prices have improved since August, they still are languishing around at price levels that are not worth getting excited about.
We still have the January final USDA report to deal with, too, and typically, large crops get larger. Since both corn and soybeans had record-large crops inprevious estimates by USDA, expectations are for perhaps a small increase from the November numbers. That would be a bit negative grains, and while that might already be built into the market for the most part, it still will be another set of negative news the market must trade.
The good news is that once the January report is out, all the bad/negative news regarding the large U.S. crops will be in the market. Finally, perhaps the market can get some good news to trade after January!
USDA will also update South American crop estimates, and although there have been recent periods where rainfall was less than normal in both Argentina (especially southern Argentina) and central Brazil, for the most part the rains returned to these areas and solved those temporary problems.
So, if anything, the crops might get a bit bigger or stay the same for South America in this report. Northern Brazil is getting close to harvest, too, so the time for crop problems to develop there is running out.
For the time being, things look a bit on the negative side for grains for the next week. With the January 12 report likely to be neutral or bearish, there isn't much to get excited about. However, those sitting on short positions should be put on notice that after January 12, there may not be any more negative news to push markets lower. So, it might not be a bad idea to consider covering short positions, especially if we get close to the bottoms we made for 2016 in August for corn and soybeans. And quite honestly, if either wheat, corn, or soybeans get near their 2016 lows, it probably will be time to cover any short positions and start preparing for better prices for the 2017 season.
Can we rally like we did in 2016 in the spring of the year 2017? It’s possible, and even likely to see some kind of rally as prices of grains are currently low. But a huge $3 rally or more in soybeans may not be in the cards, especially since U.S. farmers are likely to dramatically increase soybean acreage at the expense of corn. Who knows, maybe corn and wheat will rally more relative to soybeans this spring.
NOTE: Pro Ag is sponsoring a 101 Marketing Seminar on January 11, 9:30 a.m. to 4 p.m. in Fargo. Progressive Ag will present its "Intro to Marketing" using futures and options. If you have never used them or if you are seasoned and need a refresher to the finer points in using these pricing tools, this session is for you. Seating is limited to the first 50 people. Lunch is included. RSVP attendance to 800/450-1404.
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years.
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