Already filled with tumultuous twists and turns for the agricultural sector, the remaining six months of 2020 will likely be filled with even more volatility and uncertainty.
Still ravaged by the aftermath of COVID-19, the United States agricultural markets look for signs of renewed domestic and export demand for grain, beef, pork, poultry and dairy products. As of this writing, China has only purchased approximately 20% of the agreed items laid out in the Phase 1 trade agreement. Weather is still a factor that can play into production of grain.
A resurgence of COVID-19 and consequent local, state and national economic shutdowns could fracture any fragile recovery efforts. Lastly, the presidential election in November and the drama associated will likely create additional market uncertainty. Let’s take a look at a few commodities to scenario plan for whatever unfolds for the remainder of this year.
Corn
Corn futures hit a price peak in January, with prices then sliding $0.80 lower until late April. The month of May saw a very slow price recovery attempt, but fund traders dug their bearish heels in, amassing a short position of nearly 300,000 contracts. The loss of ethanol demand, and outlook for new crop corn carryout to be over 3 billion bushels, kept prices on the defensive. As of this writing, trade is eagerly awaiting the results of both the June 30 Quarterly Stocks Report and Final Planted Acreage Report.
Corn prices are on the cusp of major technical price support. If the June 30 data is negative, expect an additional $0.50 price slide lower. If the data is supportive, then look for the funds to exit some of those short positions. Further, should that report be friendly, be ready for the early July seasonal price rally. Often times this July rally lasts only two weeks, with a timely rain in pollination killing the rally engine. Be ready. The bottom line, unless exports increase, ethanol demand gets back on track, or there is a weather issue somewhere in the world over the next month, prices may be on the defensive.
Soybeans
Similar to corn, prices have endured a price slide lower for the first part of the year with a recent recovery bounce. The question for soybeans comes down to August weather and export demand. With U.S. ending stocks overall trending lower from year ago levels, there is little room for yield loss due to weather issues.
Thankfully, demand has picked up and the U.S. Department of Agriculture is projecting that export demand for soybeans will be over 2 billion bushels in the coming year. As of this writing the funds have a mostly neutral position in soybeans, and are waiting to see if China will live up to their end of the trade deal or not.
If the trade deal blows up again, South America is eager to continue to receive the bulk of the Chinese business. We also look for soybean acreage to continue to grow in the Southern Hemisphere, which will create further competition for the U.S. Similar to corn prices, soybean prices also are at important technical support levels on charts. The final planted acreage number and Quarterly Stocks number for U.S. soybeans will set the stage for prices in the coming months.
Cattle
Cattle futures prices fell fast during the initial COVID-19 crisis. Prices have recovered and have been trading in a narrow sideways trading range as true demand is gauged. The market is watching cattle weights (which have been high), export demand and the slow re-opening of the American economy. For now demand will be the leading indicator of price direction as supply is deemed sufficient. A lower U.S. dollar will help on the front of demand as that will likely entice additional exports. Weather this summer and pasture conditions will also be monitored as we hear of dry conditions growing in parts of Nebraska and Kansas.
Very important pieces of the fundamental picture for commodities will be answered in the next few weeks. A better understanding of quarterly stocks for grain, final planted acreage numbers, weather, and monitoring the value of the U.S. dollar as it affects export demand will the featured market movers in the coming weeks. In the bigger picture, geo-political events as we head toward the election could bring another round of price trepidation as 2020 comes to a close. Be ready for anything.
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].
