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Is The Stock Market Propping Up The Grain Market?

World wealth feeds U.S. farmers' pocketbooks.

The grain markets are taking one step forward, one step back. And then two steps forward, and two steps back. 

In other words, the grains are doing a whole lotta wiggling, but net movement is almost nothing at this time of year. Pobably justifiably so, as we have large stocks of grain of almost everything (wheat, corn, and soybeans), having just come off the late fall harvest of a record-yielding corn crop, and second-largest-yielding soybean crop. 

Those numbers aren’t going to change anytime soon, so the market is left stuck in neutral.  

That is in direct contrast to the equities, as the stock market Dow Jones Industrials has risen about 30% in the past year!  This is a huge gain and is making stock investors look very good again. The 401k's that became the 201k's in 2008-2009 are now 501k's!  No one seemed to expect the stock market to do so well, but actually after the grain markets do their big rally (which takes about seven years), then it's the stock market's turn – and the stock market rally usually lasts longer. A lot longer! Remember the 1980 to 2002 rally? It was huge and was like the energizer bunny: It just kept going and going and going and going.  

To the point where even Federal Reserve Chairman Greenspan called it “irrational exuberance.” But he was wrong, too. It kept going a long time after he said that. Sure, there were setbacks, but they didn't last. The rally did!  Basically for nearly 22 years!

What difference does it make? A strong stock market makes everyone wealthier and feel wealthier, too. Prosperity in the U.S. often spreads to other areas of the world. That would be good for food producers in the U.S. who export to the rest of the world – especially to China and India, two countries with a good share of the world's population. If their diets improve, the argument goes, so do U.S. farmers’ pocketbooks. 

So that is perhaps the most positive thing going long term for U.S. farmers. If the world's population gets wealthier, usually demand for U.S. farmer’s production improves.  

South America Crop Weather

Another positive that is an ongoing development is the South American crop, which might be encountering its first bout with some adverse weather.  

Currently, warm/dry weather in both northern Brazil and Argentina/southern Brazil seems to be settling into a weather pattern that is establishing itself in these regions. 

For the past week, South American weather has shifted to a more concerning forecast that does threaten to reduce yield potential of the South American crop. It is basically a warm/dry forecast for all but central Brazil for the next 14 days, and central Brazil has a cool/wet forecast that also is a bit concerning in the early stages of crop development. If this forecast continues for a long period of time, it’s likely crop yields in South America will be reduced. 

The next seven days have a cool/wet forecast for central Brazil and a dry/warm forecast for all the rest of Brazil (both in the north and south) and in Argentina. 

The eight- to 14-day forecast shifts the rain systems and cooler weather into the northern half of Brazil (shifting northward), while the southern half of Brazil and Argentina will then be forecast to be warm and dry. Overall, this is a supportive forecast to the grains as it brings some adversity to the SAM crop.      

U.S. Weather

U.S. weather forecasts are still relatively warm and dry the next seven days, with the Northern Plains the only region to see above normal precip (and this time of year that isn't much). It will be mostly dry elsewhere and above-normal temps except the southeast U.S. (below normal). 

The eight- to 14-day forecast is more of the same, precip-wise (mostly below normal), with temps cooling a bit as seasonally they will do. U.S. weather is not a big factor in grain markets, and probably won't be, until about March 15 when they will start to matter again (and increasingly so as we go forward in the 2018 growing season).   

Tax Man

The tax-reduction plan passed the Senate last week, and will likely become law by Christmas as Senators voted 51-49 to pass the bill (it passed the House earlier, and President Trump has indicated he will sign it). This is likely to boost the economy even more, making a strong case that the Trump administration, so fa, has been a blessing to Wall Street and every American (or foreigner) who owns stock. 

If the U.S. economy keeps clicking along (a 3% growth rate in the past year for the first time in a long time), we could even see some inflation creep back into the U.S. economy.  Prosperity could spread from the U.S. to the rest of the world, which would boost demand for U.S. agricultural goods. This is probably the best news agriculture has seen in the past 3 years. It may take some time, but we could see that positive impact more and more as time goes on.

With the stocks levels in grains, we could use a boost right now from some source.  It appears it might be from a bullish stock market, and strong U.S. (and hopefully world) economy.   
Mark Your Calendars for upcoming “Opportunities In The Rough” Marketing Seminars Monday, December 11 - Market Outlook - Bismarck, ND - 7:00 p.m. Monday, January 15 - Marketing 101 for Beginners - Fargo, ND - 9:00 a.m. Monday, February 19 - Market Outlook - Fargo, ND - 9:00 a.m. Call the office at 800/450-1404 for more details. Ray Grabanski can be reached at  
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years.

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


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