The reality of sinking commodity prices due to COVID-19 has wreaked havoc on farmers across the nation. Prices for grain, livestock and milk have dropped to historic lows.
Demand for commodities has shifted as the world continues to shelter at home due to the coronavirus. At this moment, there is plenty of uncertainty as to demand and even supply. May will likely bring plenty of fresh twists and turns to the agricultural community. Here are three of the most important aspects to monitor.
1. Seasonals
The historical seasonal price pattern for corn and soybean futures strongly indicates that a spring price low occurs in late April to mid-May. In fact, looking back at the past decade (using July corn futures as my guide) the spring low for corn occurred in the month of March three times. The spring low happened in April four times. Once the low occurred in May and twice it actually bottomed out in early June. Be on the lookout for that price low, because that usually leads to some sort of a summer price rally.
Often times it is the summer price rally that brings some of the best grain marketing opportunities of the year. Those rallies usually come and go quickly, so start to plan for them now. In this uncertain environment with ethanol plants closed, start researching where you can sell your grain, and which contract type would be best suited for your marketing needs. Please also be aware, when the seasonal summer high occurs, it usually peaks mid-June to the mid-July, and then prices usually slide lower until the harvest low.
2. May 12 USDA report
The next U.S. Department of Agriculture Supply and Demand report will likely offer an extreme amount of fresh data for the trade to dissect and interpret. This report has an unusually historic significance to it because of how the 2019 harvest data may be thoroughly adjusted. When NASS surveyed producers in December for the Crop Production 2019 Summary, there were a substantial number of unharvested acres of corn in Michigan, Minnesota, North Dakota, South Dakota and Wisconsin. There were also unharvested soybean acres in Michigan, North Dakota and Wisconsin. That unharvested crop was actually counted as a production total, and entered for the Jan. 10 crop report. Many in the industry felt that the data released on Jan. 10 was not accurate due to the reality of the late harvest.
The USDA’s National Agricultural Statistics Service re-surveyed respondents in Michigan, Minnesota, South Dakota and Wisconsin who previously reported unharvested corn or soybean acreage. Trade is eager to see if the “harvested acre” category shrinks, or if there is a change to yield. Will that low test weight corn finally be acknowledged? Ending stocks estimates are also subject to review.
Trade will also monitor the demand aspect. Will there be more demand for feed since livestock are backed up in the countryside due to COVID-19 slaughterhouses being closed? Will exports be changed? Will the USDA drop corn use for ethanol even more than they did in April? Will soybeans used for crush be increased on this report? Will wheat ending stocks change due to recent market conditions? Every category on this report will be gone over with much scrutiny, and expect volatile trade price reaction.
3. Exports
United States wheat exports are of primary interest. There are suggestions the Russians will be limiting the amount of wheat they export during the summer months, until they have a better understanding of the current size of their crop. If true, that may result in stronger U.S. wheat exports. There are also rumblings that Ukraine will ease up on the amount of corn they allow for export. If true, will the U.S. gain some of that business? Also, recent reports from Reuters news, suggest that China is preparing to buy more than 30 million tonnes of crops for state stockpiles to help protect itself from supply chain disruptions caused by the coronavirus pandemic and make good on pledges to buy more U.S. crops including soybeans, corn, cotton, sugar, soybean oil, pork and potentially beef. Yes, we have heard that song and dance before, but if they actually do make large purchases, that will prompt prices higher.
The month of May will bring plenty of price action for all commodities as the world continues to navigate COVID-19. How quickly or slowly global economies are allowed to re-open will be the largest factor to steer demand for energy and food. Add to it any weather issues that might occur to crops being planted and supply becomes a factor quickly. While it might be tempting to just ignore the markets for a while, the month of May might be the beginning of some better opportunities. Stay vigilant.
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].
