Market analyst: The bull rages

Ray Grabanski
Special to the Farm Forum

The bull market is raging, with soybeans running to the highest price in over two years at $10.48 on Sept. 6, and Chicago wheat at the highest price in over five years at $5.96 on Sept. 6. Corn is at the highest price in months, but is still quite a ways from the $4.60 area high made last summer during the prevent plant fiasco. And both Kansas City and Minneapolis wheat have a long ways to go to get to a decent price yet. But it’s a great start.

There are a lot of good reasons for the rally, but here are the three most important right now:

  • China is back! And once the election is over in 30 days, they will be back even stronger as no matter who wins the election, China will have incentive to buy even more (but for different reasons depending on the winner).
  • A drought has gripped the western U.S., and that’s where the worst drought come from (like 1980 and 1988). The severity and impact so far is devastating — we haven’t seen it this dry in many, many years.
  • Even U.S. consumers saw “shortages” the past year due to the pandemic. A little fear in buyers can help prices go a long ways.

Regardless of what you think about fundamentals, there is no question that technicals are pointing higher. We have a tremendous base to rally from on long-term charts, as we just finished a two-year double bottom in corn, a years-long head-and-shoulders bottom in soybeans, and actually CBOT wheat bottomed probably three years ago. The direction is up, up, up in everything now — and we are just getting started, as it could take years to complete the rally. Oh, the times they are a’changin’! Weather forecasts continue hot and dry for both the U.S. and South America, where planting is delayed as the rains haven’t yet arrived in Matto Grasso (as they typically do this time of year). The U.S. still has above normal temps forecast and below normal precip the next 14 days, which will result in rapid harvest progress, but also rapidly dry out winter wheat ground (making germination spotty). So wheat prices were sharply higher Sept. 5, and it might be corn and soybean’s turn to join in the fun.

Another potential bull market driver will be the ongoing drought in North America and South America. The southwest U.S. is locked in severe drought, and has been most of the year. Typically, the worst droughts in U.S. history start in the southwest, and then spread eastward the following year (1980, 1988). The odds are increasing that 2021 will be an outlier drought year, with once in a decade or two type impacts. If that occurs, $4 corn and $10 soybeans will look very, very cheap!

Whatever you do, don’t miss the big picture for ag the next few years. To be honest, all of ag will probably see a rising tide lift all ships, as prices will have to go higher with China resuming heavy buying of grains now that their hog herds are expanding significantly. Also, regardless of the election, they will buy more from the U.S.: If Trump wins, they’ll have to buy to meet their Phase I commitment to avoid additional tariffs. If Biden wins, they’ll buy to help him get support of U.S. farmers, and in return get lower tariffs as Biden will remove some (at least that was his campaign promise). Either way, farmers win as they’ve already suffered the pain to start the trade war, now all the benefits of it will come as the trade war lightens as we go forward.

We note that many analysts who have been sold out (and wrong) since August, and are crying for a top to occur in the market. Many ask me “When will the top come?” With a two-three year bottom on long term charts, its likely to not be for one-three years, or more. So patience is still a virtue in this market. These guys are desperate to see a top quickly, but they will be disappointed.