Is a short-term top ahead for grain markets?
The bull market for grain futures is on a six-month rally thanks to a smaller U.S. crop and strong demand. Based on current information, and barring any black swans, the outlook for old-crop corn and soybeans looks to remain friendly into summer. But even the best bull runs in previous years have had price corrections lower along the way. Is a price correction coming in February? Here are a few important things to be aware of that could affect trade.
Looking at seasonal charts for both corn and soybean futures, there is a strong tendency for a price correction lower starting in a time frame of mid- February to early March. Part of the reason for seasonal tendency is because the South American crop becomes harvested and available to the world during that same window. Also, South American crop export demand picks up, with demand for U.S. crop slowing down.
Important Dates to Be Aware of
The next USDA report for grains is Tuesday, February 9. This is a regular monthly supply and demand report. Most likely it will have a supportive tone as ending stocks continue to shrink. How much of that friendly tone may already be priced into the market is what needs to be monitored. The days following the report are also important.
The Chinese New Year begins on Friday, February 12. For nearly a week much of the country is off from work, spending time celebrating with friends and family. It will be interesting to see if China is an active grain buyer during this week or not. February 12 is also important as it is the last trading day before a three-day U.S. holiday weekend. On Monday, February 15, the markets will be closed for President’s Day. There may be position squaring done on Friday, February 12, so traders do not hold positions over a three-day holiday weekend.
The last important event taking place in February is the USDA Outlook Forum, happening on Thursday, February 18 and Friday, February 19. The event will be virtual this year, but traditionally at this event the USDA puts forth their first guesstimates for how many acres of grain will be planted in the U.S. this spring. Expect big numbers. They also use trendline yields in their equations, so on paper, there will be the appearance of a potential for a large U.S. crop planted this spring. Oftentimes, traders grab hold of this news and trade it as gospel until proven otherwise.
So while the long-term outlook for grain remains friendly for now, there may be a few bumps in the road ahead. Trade will continuously monitor demand and South American weather in the short term. Be thinking of your old- and new-crop cash sales. Be ready to both manage the risk, and reward, in the coming months.
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