Since late August, corn, soybean and wheat futures prices have been inching higher.
The reason for the price increase seems to be two-fold; funds are exiting short positions to show profits on the books for third quarter, and the notion of a large United States crop has already been priced into the market. The market is also starting to look to the future as global weather is on the dryer side in portions of Brazil and the Black Sea region, and some weather premium is being put back into grain prices.
From a marketing perspective
But where to from here? There are things lurking, which could either propel the recent rally significantly higher or bring it to an abrupt halt in the days and weeks ahead. You need to be ready for either scenario to unfold.
For corn and soybeans, part of the recent rally was due to dry weather concerns for portions of Brazil. In Brazil, farmers are just beginning to plant soybeans and first crop corn. While there are chances of rain in the forecast, if the rain does not materialize, that could continue to support U.S. prices on the hopes that more export business will come to the United States.
Regarding global wheat weather, it is said that the pace of planting crops in portions of Russia is slower than normal. Western Russia only has received roughly 20% of the precipitation it normally receives during September, with dry weather expected to continue in the short term.
Looking further into global production, it is now expected that planted corn acres in Argentina may be lower this upcoming growing season. According to the Buenos Aires Grain Exchange, the Argentine corn planting area for the 2024-25 season may drop nearly 17% due to ongoing issues with leafhopper pest infestation and drought. While Argentina is not a large global player for corn, it is to be noted that traditionally, what is grown in Argentina is consumed domestically, and anything “leftover” is exported primarily to China. Now, it looks like there may not be any “leftovers,” and the hope is then that the U.S. can pick up some of that corn export business.
In addition to traditional supply and demand, there are also “outside market factors” that must be scrutinized as well. Funds are one of those influential factors. In recent weeks, according to the CFTC report, the managed money funds have reduced their short position to approximately 130,000 contracts in the corn market, the smallest in four months. This is viewed as evidence that the funds have been slowly exiting their bearish stance. In fact, since establishing a record short position at nearly 354,000 contracts in late July, they have been net buyers (exiting portions of their short positions) for nearly the past two months. Will they continue to exit short positions? If so, this will help to keep corn prices supported.
It is also important to watch the U.S. dollar. The U.S. dollar index has been inching lower in anticipation of further interest rate cuts produced by the Fed. It is now holding near the $100 level, down from the $106 level earlier this summer. Why does the value of the dollar matter? A lower dollar is beneficial for U.S. exports, as it allows for other countries to potentially want to import more, due to currency exchange rates making U.S. commodities cheaper to purchase.
Finally, it is always important to monitor global geo-politics. The upcoming U.S. election is paramount on the global stage. All eyes also are on China; might there be a tariff response by China?
In late September, the Biden administration locked in an extension of tariffs on Chinese imports, affecting products like electric vehicles, solar cells and steel. Traders are watching China’s response to this, as there is concern that China could retaliate against American commodities in some fashion. After all, in early September, China announced a one-year anti-dumping investigation of Canadian canola (which sent canola prices plunging lower) in response to Canada imposing additional tariffs on imports of electric vehicles from China.
Prepare yourself
Be ready for anything. There is more to monitor than just U.S. harvest yield results. Global weather and outside market influences matter, too. A glimmer of friendly news could spur additional short covering by the funds and trigger a further price rally. However, a lack of friendly news might keep grain prices in a sideways pattern for the short term, ultimately letting “gravity” win out, and a price slide lower.
Many price scenarios can unfold in the coming days and weeks. Manage your risk. Be ready for any surprise.
If you have questions, you can reach Naomi at [email protected] or find her on twitter @naomiblohm.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies.
