More fireworks ahead in the grain markets, analyst says

The grain market has exploded higher, led now by corn as expectations for South America’s (SAM) corn crop have continued to decline the past few weeks. 

The SAM corn crop was planted late, and both Brazil and Argentina have struggled at times to get rain in areas that needed it. So, the late-planted corn continues to disappoint as it nears harvest. Corn, soybeans, and wheat are all at new recent highs, but corn and soybeans have performed a lot better than wheat.  

The rally has taken on new dimensions lately, with May corn limit up to start today after a violent week last week – it’s now traded higher seven days in a row with about $1.20 gains in that time. (Obviously, fundamentals don’t change that dramatically in seven days.) 

This is the most dramatic day yet, and we could have more fireworks ahead in the grain market. This is enough for a market top with seven straight days higher in corn, and a limit move to start the day. Usually at a market top, though, limit up early in the day is followed by limit down late in the day – and that doesn’t seem to be happening. However, we would be topping at $7.20 corn, not quite the objective of $8 one would expect with a blow-off top. 

When we hit the top, it might be the market top for a few years as prices are getting high enough where demand can be rationed, and producers have more incentive to produce even more product. The kinds of markets often reach their pinnacle in the April/May time frame.  However, to pick the exact day and time of the market top in this kind of emotional market would be foolish.  

Producers may want to look at multiple-year sales when the market top is confirmed (a drop of over 7% from high to low). When that happens, you will want to sell 2021 corn (currently trading $5.86 Dec21), 2022 corn (currently trading $5.19 Dec22), and some 2023 corn (currently trading $4.65).  Hopefully, the market keeps running to $8+, and then all these values are higher when that happens. But make no mistake, this rally will be done sometime this spring – we just don’t know the day yet. Also, multiple-year sales of soybeans might be advised, as well, once this market tops this spring.  

For wheat, it is sorely lagging corn/soys in the rally. For example, both corn and soys are at eight-year highs, while HRS wheat is at only three-year highs. The 2021 crop might be more likely to be a bust in HRS wheat than any crop (losing acres and in a drought), so this is the most undervalued crop on the board. (It’s priced as a 14 protein feed grain.) To start HRS wheat sales again we were targeting $8, but perhaps we should go up to $8.50 given the rally in corn? Or, at least see a market top first in corn before selling? No question, HRS wheat is undervalued right now.

Crop progress yesterday showed corn 17% planted (3% behind normal) as we are waiting for soils to warm. Soybeans are 8% planted (3% ahead), with cotton 12% planted (1% ahead), and sorghum 19% planted (3% behind normal).  

Sugar beets are 44% planted (9% ahead), HRS wheat 28% planted (9% ahead), oats 59% planted (7% ahead), and barley 35% planted (+7%). All the cool-season crops are ahead of normal planting, but corn behind because the seed rots in cold soils. Topsoil moisture declined 3% to 66% adequate/surplus despite cool temps, and subsoil declined 2% to 63% rated adequate/surplus. Winter wheat conditions declined a large 4% to 49% G/E, with our Pro Ag yield model down a large 0.44 bu/acre to 50.84 bu – just above the 50.56 trend yield.  So the cold weather has had a negative impact on winter wheat crops last week. 

Growers of warm-season crops like corn and soybeans have been waiting for warmer soils to plant seeds into, which accounts for the slow planting pace so far for both crops. However, the forecast is finally for warming temps, so planting progress should be more rapid next week.

There is more money buying grains than selling. So, prices are going up, and fast! To cash in on it, you have to pick a point to sell it at these great prices.

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Ray can be reached at raygrabanski@progressiveag.com.  

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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.  

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