Sometimes it can feel daunting and downright frustrating to know what factors affect grain prices these days. With a global marketplace, there is more to monitor and understand than just the crop growing in your backyard.
In an effort to help narrow your focus, I recommend you monitor these factors in the new year.
Supply and demand
While this may seem basic, the months of January and February hold critical keys to supply information for both domestic and global grain production.
First is the Jan. 12 U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates report. This report will show final production numbers for the crop year, meaning if there are any last minute acreage or yield twitches to the crop that was grown in the United States in 2021, it will be announced on this report.
In addition, the quarterly grain stocks information will also be announced on this date, which provides additional clues for old crop supplies on hand. Again, I remain adamant that old crop ending stocks for corn for the 2020-21 crop year are tighter than the USDA is suggesting. Basis was so strong during late August, September and even early October at harvest time that I think there was very little old crop corn remaining in farmers bins. This report should shed light on that notion.
Global demand for corn, soybeans and wheat overall is hearty. Corn use for ethanol is likely ahead of USDA projections, while export sales for grains remain essentially in line with USDA projections for this current crop year. Something to be aware of for January and February would be if Argentina had adverse weather conditions for their soybean crop.
Argentina is the world’s largest exporter of soybean meal and soybean oil. Should their soybean crop be smaller, that might actually create more demand for U.S. soybean meal and soy oil for export. That would be an unexpected “blessing” for our market and be supportive for prices.
Weather
La Nina potential in South America is going to be critically monitored over the next eight weeks as Brazil and Argentina now have the crop planted, and head into a prime production window. Remember, La Nina in South America would suggest warmer and drier weather potential. Currently, Southern Brazil and Argentina are both on the drier side.
Here in the United States snowpack in the Rocky Mountains will be paramount for farmers in the western Plains to replenish irrigation potential for spring and summer months. Also when looking at the most recent drought monitor index, half of the United States remains in some sort of drought with subsoil needing a desperate recharge to be in optimal position for spring 2022 production.
U.S. dollar
The value of the U.S. dollar has been in a slow uptrend since June. Will that continue or not? There will be important Fed commentary released soon that may shed a light on next directional steps for the value of the U.S. dollar.
All you need to remember is that when the value of the U.S. dollar is down, it makes it cheaper for other countries to import our commodities due to currency exchange rates. A lower dollar increases demand for corn, soybean and wheat exports.
China and other geo-political drama
China is important to monitor for many reasons: their economy and GDP, internal grain production, grain demand and demand for feed for livestock. Thanks to the overall growth of the economy in China, the middle class within China has more disposable income to spend. Because of this increase in income, food consumption for higher protein has also increased in the form of dairy, beef, poultry and pork.
A new wrinkle in the China watching factor is the fact that China is hosting the Winter Olympics and many nations will send their athletes, but not any diplomats due to China’s human rights abuses. China is not pleased about this. They likely will not do anything brash prior to the Olympics, but when it ends on Feb. 20, there may be some creative retaliation measures played out.
Trade wars, Olympic boycotts, Middle East turmoil, renewable fuels, Russia and Ukraine, China in the South Sea; these are the headlines to watch for potential “black swans.”
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Remember, even though the fundamental stage is being set for potentially supportive prices heading into 2022, one negative story from any of these topics, could create a negative price reaction that could bring a bull run to a screeching halt. Therefore, it is paramount to have a plan in place to know when or how to price your grain, just in case one of these black swan stories emerges, sending prices into a spinning free-fall lower.
Seasonals
Seasonals are still important to monitor for grain markets. When are grains usually the cheapest? At harvest, when supplies are plentiful. And when are grain prices often the most attractive? Late winter, or early summer, when the size and potential production of the crop is unknown or a summer weather threat may be looming.
Interestingly enough, there is a strong seasonal tendency for corn and soybean prices to peak in early to mid-February. Why then? Well, this conveniently coincides with the timing of a better understanding of the size of the South American crop, plus this year it will be the end of the Olympics in Beijing, and also the USDA outlook forum will occur on Feb. 24 and 25 where they release one of the first guestimates as to spring planted acres.
Being aware of these seasonal time frames can help you make smart pricing decisions for your crops; either old crop in the bin, or pulling the trigger on new crop sales.
Funds
The funds. The big investment money that partakes in the trading of commodities. The fund managers also watch and monitor all of the fundamentals listed above, as they are looking for opportunities to invest and make money. Every week, the government requires the funds to disclose the amount of positions bought or sold during the week. From there, we can track if they are amassing a long position in the market, or a short position.
Balancing and monitoring these factors, and being aware of how they fluctuate throughout the year will help you to best manage marketing opportunities and minimize market risks. Re-visit these fundamentals often. Fundamental news continues to shift weekly. Be ready to act on pricing opportunities as they become available. Have action plans ready for whatever market scenario unfolds. Remember, marketing is how you get paid for your hard work. Farm market scenario planning is hard work; and those who take time to strategize and execute, realize their pay day. Prices can turn on a whim, be confident and ready.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
