The six-month grain rally continues to be well intact. Current ending stocks for corn, soybeans and wheat are all historically snug, with the likelihood of getting smaller in the months to come.
While grain market fundamentals remain supportive in the bigger picture, the recent rally appears to be running out of steam. Corn futures even signaled a topping signal on daily charts back on Feb. 9, after the U.S. Department of Agriculture report released that day was viewed as “not bullish enough,” sending prices lower at end of day. Soybean futures are also signaling a pause on the bullish trend and have been trading in a sideways trading pattern for nearly two months. While we do not feel corn and soybean futures prices will fall dramatically lower, there is little incentive for prices to rally excessively higher in the short term.
Corn futures did not receive much in the way of fresh fundamental news on the February USDA report. Ending stocks were reduced to 1.502 billion bushels, with a stocks-to-use ratio now at 10.3%. While friendly news, this news was largely expected, and already priced into the market.
The soybean old crop fundamentals remain friendly, there is no question. The stocks-to-use ratio is now tied for the tightest ever in history at 2.6%. Export demand is strong with export sales near 95% of USDA projections of 2.25 billion bushels. Export inspections (what has actually left the country already) is pegged at 80% of USDA projections, well ahead of the normal five-year average pace. In mid-February, the National Oilseed Processors Association Crush Report was released. The report was supportive for sure, announcing that 184 million bushels of soybeans were crushed in the month of January. 184 million bushels was the second largest crush number, ever.
You would think that with all this supportive news that grain prices would continue to march higher. But actually, this supportive news is allowing for prices to not fall apart lower. There is not brand new demand, nor is there much to debate about regarding remaining supplies on hand.
Seasonally, there is a strong tendency for corn and soybean futures prices to trade sideways to lower during March as export sales start to diminish. Remember, that the South American crop is being harvested, and will win export business in the months ahead. This is a normal market feature that occurs annually. Looking ahead, the next USDA report is not until March 9. And quite frankly, there likely won’t be much fresh bullish news announced between now and then.
With old crop price outlook friendly, where does that leave new crop? The USDA Outlook Forum in February showed expected larger corn and soybean acres to be planted in the United States this spring. Corn acres will likely be close to 92 million acres, with soybean acres pegged near 90 million. This perception will likely keep a lid on any type of new crop corn or soybean rally for a few weeks until the March 31 perspective plantings report announces the official government data. One thing to keep in mind, because the old crop corn and soybean story is so friendly, new crop prices likely won’t fall apart either. A sideways trading range seems likely to develop in the weeks ahead.
Is there anything that might make the market trade higher again in the short term? A surprise move for this market would be if China made any large export purchases in the next few weeks. Trade is expecting China to shift their attention to South American supplies, so any fresh announced export sales would be a welcomed bullish announcement. Also, the second crop corn in Brazil is very slow to get planted because the soybean harvest is behind schedule. The longer it takes for that second crop corn to get into the ground, the more it is at risk of key development during the traditional dry season in Brazil. Remember, 70% of the corn that is grown in Brazil is from the second crop corn production.
If you’re thinking of making any additional old or new crop sales, this might be your best opportunity in the short term. While futures prices could have potential to explode higher this summer depending on U.S. weather, don’t lose sight of the opportunity in front of you.
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].
