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Honored Advisor

Where to from here?

Mike,   I would like some "where to from here" opinions from some of your market guru connections. There seems to be a large amount of news and variables concerning the direction of the grain markets.  USDA's lofty predictions of acres and yields are well known by now and we know they will continue that recipe for next year's acres and yields as well. Their predictions had many farmers forward selling a large portion of 2020's crops at way too low prices.  We all know where we have been,  I would like to hear some educated guesses on where the grain markets are headed in the next year.  Anyone feel free to comment.  

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Honored Advisor

Re: Where to from here?

After a very contra-seasonal year, 2021 is extremely likely to be very normal and seasonal. High in Jan, Spring high in April, Summer high in early June, and then the grain markets likely get blow to bits. Record acres, record yields, and the world has already rebuilt its inventories. Going higher now is pretty bearish for deferrred prices normally. OF course, nothing is normal, never has been, but statistics can be helpful.

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Veteran Contributor

Re: Where to from here?

Just wanted to agree with the statement that USDA yield forecasts caused farmers to forward contract at lower prices.

Curious how many others felt they did too much at lower prices based on USDA projections?

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Veteran Advisor

Re: Where to from here?

roarintiger1,

 

I will run the traps.

 

Thanks,

 

Mike

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Veteran Advisor

Re: Where to from here?

roarintiger1,

 

Here you go. I hope that this helps.

Peter J. Meyer, S&P Global Platts, head of grain and oilseed analytics, says that the two variables that we’re watching heading into 2021 are weather and China. 

"Dryness in the Black Sea region and South America have been major contributors to price strength, especially in soybeans and wheat.  Some are starting to write off the Brazilan soybean crop given planting delays and the fact that a record high production figure of 133M MT is the USDA’s estimate.  In our opinion, it is too early to write off that crop as Brazilian farmers are anxious to plant record acreage given the current prices.  The delayed soybean planting may result in lower corn production for their second-season crop.  The drought in Iowa this summer is concerning, but with a La Nina most of that area should receive beneficial moisture this winter.  Over 60% of the lower production in 2020 has come from Iowa’s drought and derecho.  Without those issues, the corn market specifically would be 20 cents lower in our estimation.

The fact that China has followed up their record soy buying from Brazil with large U.S. purchases suggests that their stocks are much lower than forecasted.  Unlike others, I do not think the Chinese will cancel some of the buys but I do wonder if they are buying for two years rather than one.

If we had this conversation two months ago, I would have been of the mindset that  U.S. farmers would plant the same number of corn acres as soybeans.  That changed with the recent corn rally and I would expect that a similar ratio to 2020 gets planted in 2021.  The “market” feels different this year, but in corn it’s exactly the same as last year. 

Corn Curve.png

While flat price corn has rallied 70 cents since mid-July, you can see that the market is in roughly the same place it was last year.  Last year the market set its yearly high in corn of $4.11 this week, a fact that many don’t seem to remember.  Last year in October the USDA had a farm gate price estimate of $3.80 on roughly 2 billion bushels in carry out.  This year it’s $3.60 on the same carryout.  The reason for this is that the 2019-20 average price was actually $3.56 against the $3.80 estimate in October.  I know the market is extremely emotional as farmers think they got screwed, but they need to be aware that we were at the same place last year.

In soybeans, the curve is steeply sloped lower.  Over the weekend, the Brazilian government erased tariffs on imports.  That suggests the market is correct and that the “squeeze” is in the front month only as Brazilians may be a bit oversold.  Rain events in Brazil change that story.

 When it comes to cash prices for the 2020-21 marketing year, we have corn in the $3.60-$3.70 zone with a bottom around $3.30 as compared to $2.90 this past July/August.  We think beans have a hard time getting below $9.00 this coming year as compared to $8.25 this past year.   

 

What say you?

 

Mike

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Honored Advisor

Re: Where to from here?

Thanks Mike!  That's a start.......keep em' coming.  

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Honored Advisor

Re: Where to from here?

Spoiler
Thanks mike and time,   

Usda is that predictable... time you leaked the February report a few months early.
 If we don’t see basis reduce in the next two weeks in the sw it will mean this crop is not going to fill demand— that’s how far off usda can be.  By November 1 we will have seen this crop come and go without spring carry over.  Fastest harvest in years. The dry out and quality reduction of a hot windy fall reduced the size of the crop in addition to all the other problems.  Consider how few dryers run this year. Today we are harvesting corn at 11-13% moisture rather than 15.5 trade %.   That’s another 450+ million bushel reduction to the 2020 crop.
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