Market anaylst: Strap on your seatbelt

Ray Grabanski
Special to the Farm Forum

What a week! Soybeans dropped $1.18 from their highs last week, with corn down $0.40 with both at or below their levels before the bullish Jan. 12 report.

Chicken Little analysts who have been calling for a top forever (since $10.00 beans and $3.60 corn) are still crying “the sky is falling”. Only, nothing has changed fundamentally in the past week, other than the bullish report finally convincing many that it was time to buy grains.

So, is the top in? Or did we just kick out a lot of ‘weak hands’ from the rally? If so, does that mean we’re ready to go higher?

The way I see this market long term, we have a long way to go before we top this market, and it could last another year or two before we finally break lower. We seem destined to find $16.00+ soybeans and $6.00+ corn before the dust all clears, but “when?” is still the question. No real technician can look at longterm charts and say “the top is in,” - only the “wrong side Randy’s” of this world will be doing that.

However, the top could be in for the next week, or even next month or longer. But, clearly, the long term picture is headed higher. The response so far this week doesn’t change that picture, as we’ve bounced back nicely this week.

But anyone who thinks we need to rally $1.00 every month in corn (like we did in December and January) will be sorely disappointed; it takes time to turn around the “Negative Nellies” of the world, and that’s what the market has been doing. But markets trade every day, meaning someone has to sell and someone has to buy every bushel. Informed people say the market makes an equal number of trades right and wrong every day, but not an equal number of traders (the majority usually lose and a minority make money). It’s not an election - the majority are usually wrong in markets. Another person stated it as “the market’s purpose is to make the most number of people wrong every day.” And in my observation, it is very good at doing just that!

Weather forecasts continue to suggest below normal precipitation in central Brazil, and more normal precipitation in Argentina over the next seven days. Temperatures will be normal in Brazil, but above normal in Argentina, so that could still a problem for many areas.

The 8-14 day forecast calls for normal precipitation in western and southern Brazil, but below normal precipitation for the central portion again. Argentina is also forecast to have below normal precipitation, which could also continue to present a problem, especially since Argentina has above normal temperatures forecast as well. The problem is, however, the whole year has been dry (especially December) and that leaves soil moisture levels lacking at the most critical time of the year.

Weekly U.S. corn exports were 55 million bushels (mb) this week. The trade seems to think U.S. corn exports will be 250- 300 mb larger than U.S. Department of Agriculture (USDA)’s estimates, and ethanol and feed use more as well so carryout will be 1.1 billion, not 1.5 like USDA’s last laughable guess.

Expectations are that the U.S. farmer had lots of ‘wrong-side Randy’ market advisors selling grain early and cheap, as 80% of the corn is sold and 7% of next year’s crops were at very low prices. So the trade owns most of the crop. With last week’s correction, those who bought back should be mostly out again due to margin calls, as well.

Weekly soy exports at 73 mb were also very large - season to date is at 1.664 vs. 927 last year; trade thinks total soy exports will exceed USDA’s expectations by 150-225 mb - and we only have 140 mb carryout now! We need 90 million acres in 2021 and the trade still thinks we’ll only have 130 mb carryout next year with the expanded acres, too.

Translation: The $2 discount for new crop is unjustified! It’s estimated by traders that the U.Ss farmer has 80-85% of 2020 soybeans sold and 5-7% of 2021’s new crop; Pro Ag thinks it’s closer to 95% sold on old crop and 10- 20% on the new crop.

U.S. wheat exports last week were 19 mb, with season to date 591 mb vs. 595 mb last year. The world doesn’t need our wheat and isn’t willing to pay for it. That’s why farmers will shift 5-7 million wheat acres to corn/soy this coming year and then wheat fundamentals will finally improve (especially HRS wheat). Wheat is still the laggard and for good reason; but, once we are through planting the 2021 crop which will have less wheat acres, wheat fundamentals will improve dramatically.

There is now no question - 2021 will be much better for farmers than 2020. The trade position of the US has improved immensely the past 5 years, and the U.S. farmer went through the pain of confronting China (backed by “Trump” dollars) — and winning — in Phase 1 of the trade agreement. Trade is up all over the world, including in Mexico, Canada and Japan. Anyone could sign a favorable ag trade agreement with the UK (which should soon be coming). After all, they’ll be buying U.S. ag products for about half price compared to their former EU suppliers - who couldn’t make that deal? So strap on your seatbelt, its going to be a fun ride!