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Sideways Trade Expected for Grains and Much More

Plus: Watch Trade Deals, Crude Oil, Elections and the U.S. Dollar

You probably heard me say on television during various agricultural marketing shows when referring to commodity price patterns, “We are likely to be stuck in a sideways trading pattern.” And once again, it does appear for the short term, corn, soybeans and wheat futures will likely trade in a tepid, pattern, as the supply and demand factors are mostly transparent for now.  

Let me be blunt. There is a big U.S. crop out there, and that will be old news from now until Thanksgiving. Supplies of wheat, corn and soybeans within the United States are more than sufficient in the short term. This fact has pushed prices down to major technical support levels on charts. Yet, thankfully, demand remains strong. Because of that, prices will likely hold firm at these lower levels and not plunge lower. 

Heading into 2019, monitoring South American weather in January and February is obviously important (as that is the heart of their growing season for grains), especially in light of the small global stocks to use ratio for corn. However, if there is no weather issue for South American production in the coming months, and if U.S. producers do indeed plant more corn in spring of 2019, the tight stocks to use ratio for corn may soon correct itself. 

What to also Watch – Trade Deals, the Dollar and Crude

We know we have enough supplies.  We also know we have overall strong demand for grain globally, with the hope that trade issues with China can be resolved so the dire, ridiculously wide soybean basis will improve in this country.  Obviously, the trade deals are of particular importance, but as equally great of importance is the value of the U.S. Dollar. Remember, when our U.S. Dollar is lower, it makes it cheaper for other countries to import our products, thus improving U.S. export demand. The dollar has been steadily climbing higher since April, as the Greenback has been viewed as a safe haven amongst the global strife. However, in the past two weeks, the U.S. Dollar has started to inch lower. 

The Dollar will likely also react and respond to any potential trade deals with Canada and China which will hopefully be resolved this fall. Traditionally, China likes to buy our soybeans during fall harvest, when supplies are plentiful and usually less expensive…and they are plenty on sale!

Continue to keep an eye on crude oil. Just a couple weeks ago, crude oil futures were resting on long term support levels on monthly charts, however that support level held, and prices have climbed recently supported by a larger-than-expected decline in U.S. petroleum stockpiles. Also supporting crude oil are the planned U.S. economic sanctions on Iran's oil industry; set to take effect at the start of November. Due to the sanctions, supplies of oil from Iran are expected to diminish; global supplies will tighten, and prices may push higher. 

Finally, when a market consolidates, or trades sideways, that means the current supply and demand tables are known, and outside markets are likely at a point of equilibrium. It is in these moments that you should focus on your marketing strategies for the months to come. Map out what your plan of action will be if prices start to work higher. Ask yourself these four questions. Where will you make cash sales? What steps will you take to protect unpriced bushels? Which outside market news events could capitulate the market? What is your plan if South America ends up having weather issues? In a time where so much can change things quite quickly, it’s more pertinent than ever to have a plan in place and be prepared. Stick to your plan, or higher someone that can help make those decisions for you.

If you have questions, you can reach Naomi at nblohm@stewart-peterson.com.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report.  Futures trading involves risk of loss and should be carefully considered before investing.  Past performance may not be indicative of future results.Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2018 Stewart-Peterson Inc. All rights reserved.

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