Third quarter saw strong export demand for United States grain. China stepped in and aggressively bought to replenish their reserves, as well as to attempt to meet Phase I negotiation agreements.
The August weather events of a derecho that hit Iowa coupled with extreme heat and dryness also supported grain prices well into early September due to fears of overall lower U.S. grain production. Both the demand rally, and supply reduction fears, provided a price rally to allow producers to get current with cash sales. Now as we head into harvest, trade continues to monitor both supply and export demand for new signs of price direction.
Corn outlook
Corn futures worked higher into early September following soybean prices higher. Even with the potential production loss from the derecho storm, the U.S. Department of Agriculture projects a 2.5-billion-bushel carryout and 17% stocks-to-use ratio for the 2020-21 crop. This is viewed as ample and sufficient. Early yield results are coming in near current USDA projections, if not slightly higher. Exports are a bright spot with the record corn buying from China; they bought 134,397 tons of U.S. corn in July and 460,824 tons of corn in August. However, much of this improved export demand has already been figured into the USDA’s balance sheet. Overall, the outlook for December corn futures seems firm, with prices likely trading sideways into the month of October until more is known regarding the potential for additional Chinese demand.
Soybean outlook
Soybean futures rallied near the $10.50 bushel mark in early September. This was a heavy technical resistance area on monthly charts, and a price feat not seen since 2018. Many producers took advantage of the soybean price rally to make cash sales for new crop and clean out old crop in the bins. Export sales were fast and furious in August and early September, with an export sale announced nearly every day from the USDA. China has been a vast majority buyer of these sales. So far in the 2020/21 marketing year export sales of soybeans are at 35.5 million tons up 192% year over year. Chinese soybean imports are up 15% year over year and are nearing the 65-million-ton mark. Demand continues to be strong. The key now will be understanding the size of the U.S. soybean crop in the aftermath of the extreme August heat in addition to monitoring signs that export demand is indeed continuing.
Traders also are keeping an eye on dry weather conditions in South America as Brazil and Argentina are gearing up to plant their crop. Continued talk of La Nina for South America may mean that dry conditions continue into the bulk of their growing season. If there are signs that their production is lower, that will continue to support U.S. prices as well as U.S. export demand well into 2021.
Wheat outlook
Dryer weather conditions continue to be a theme for global commodities. Argentina and Ukraine had dry conditions reported in early September, which lent support to futures prices. In addition, according to the drought monitor index, drought covers one-fourth of the U.S. winter wheat production areas. Rain is needed to get the winter wheat crop off to a proper growing start. U.S. wheat exports are on target to meet USDA demand projections. As of this writing, cumulative export sales have reached 50% of the USDA forecast for the 2020/21 marketing year versus a 5-year average of 48.5%.
While the export demand for U.S. grain has been fantastic, a note of caution is warranted. The value of the U.S. dollar had been trending sideways to lower for most of the third quarter, and was an important factor to influence strong export demand. (When the value of the dollar is lower, it makes our grain cheaper for other countries to import due to the currency exchange rates.) Be aware, over the past few weeks the value of the dollar has begun to slowly grind higher, which may impact future grain exports. Continue to monitor any marketing opportunities in front of you. Make sure you are current in your marketing tools to know how to manage risks and opportunities ahead.
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].
