Marketeye: What I’m Hearing
If there was ever a good time to have a grain marketing plan, now may be it. The plot is thickening and here’s what I’m hearing.
My reference points range from talking to farmers in person and online in discussion groups, to visits with professional market analysts and traders.
In this wide-ranging group, you can pick up any bullish- or bearish-slanted take on the grain markets that you want. So, what do you do after digesting so much confusing market information? My suggestion would be to create a marketing plan that fits your farm operation.
Let’s go through just a few of the fundamental and technical market factors that are being discussed.
A Bean In My Ear
The flavor-of-the-day fundamental that is being thrown around is that U.S. farmers could plant 4 to 5 million more soybean acres this spring than a year ago. With that theory, U.S. corn acreage would fall.
There is decent leading indicators to back up this theory. For instance, the soybean-to-corn price ratio is the widest in nearly 20 years, favoring the planting of soybeans this year. Recently, new-crop November 2017 soybean futures traded at $10.28 per bushel, while December 2017 corn futures have been in a range hovering around $3.90.
Plus, the fact that the funds are near-record long the soybean market gives credence to traders who see this market moving even higher. Will the outside investors keep adding to winning positions?
It’s a little bit of a head-scratcher that Brazil could be ready to harvest a record-large soybean crop, and Argentina’s weather-stricken soybean crop is stabilizing, yet there is still talk in the market that the soybean prices could have upside.
Longer term, the charts show that soybean prices mark a low nearly 39 months apart. The next low is projected for the last quarter of 2017 or the first quarter of 2018. So, if you plant more soybeans, will you be able to hold onto them for very long? You can see where a grain marketing plan could come in handy right about now.
A combination of cash sales, hedging, and crop insurance is a suite that is talked about as an effective risk-management plan by trusted sources.
Aside from less acres in 2017, strong domestic demand, fairly neutral planting, and growing weather projections, the corn market now has to digest explosive trade talk coming from the new Trump administration.
With the strike of a pen, President Trump has taken the first steps to get the U.S. out of the Trans Pacific Partnership agreement and has thrown a bucket of water on the NAFTA free-trade agreement with Canada and Mexico.
Corn farmers and the corn industry sat up straight on the saber rattling of a 20% import tariff with Mexico, considering the southern neighbor is the number two U.S. corn buyer.
In 2015, the U.S. shipped $2.3 billion worth of corn and $1.4 billion worth of soybeans to Mexico. In addition, over $1.0 billion each worth of dairy, pork, pork products, beef, and beef products were sold to the U.S.’s southern border neighbor.
Mexico, the number two customer for U.S. corn exports, buys the grain mainly to feed its animals.
What To Do
Some market advisers feel like the corn and soybean markets have marked their lows and have been suggesting to their customers to buy the dips.
With February being the most important month for South America’s soybean production, the farm markets may be preparing for the next fireworks show. So, stay tuned for weather updates in the next two to three weeks.
After China’s New Year celebration this week, the markets will be watching to see if that country switches soybean purchases from the U.S. to South America.
Yet, a favorite source is making sure that investors don’t forget about the U.S. dollar. It has dropped from its six-month highs, but it still remains high. The dollar is getting huge attention, as trade talks heat up.
Others are saying these farm markets could be in a sleepy stage until the release of the March 31, 2017, USDA Acreage Report.
Speaking of sleeping, if the first few weeks of the new Trump administration is any indication of the future volatility, staying awake for black swan market events may be best advised.
Uncertainty seems to be ruling the moment. Perhaps it would be helpful to take a moment and consider your 2017 grain marketing strategy.