You probably heard me say on television during various agricultural marketing shows when referring to commodity price patterns, “We are likely to be stuck in a sideways trading pattern.” And once again, it does appear for the short term, corn, soybeans and wheat futures will likely trade in a tepid, pattern, as the supply and demand factors are mostly transparent for now.
Let me be blunt. There is a big United States crop out there, and that will be old news from now until Thanksgiving. Supplies of wheat, corn and soybeans within the U.S. are more than sufficient in the short term. This fact has pushed prices down to major technical support levels on charts. Yet, thankfully, demand remains strong. Because of that, prices will likely hold firm at these lower levels and not plunge lower.
Heading into 2019, monitoring South American weather in January and February is obviously important (as that is the heart of their growing season for grains), especially in light of the small global stocks to use ratio for corn. However, if there is no weather issue for South American production in the coming months, and if U.S. producers do indeed plant more corn in spring of 2019, the tight stocks to use ratio for corn may soon correct itself.
What to also watch—trade deals, the dollar and crude
We know we have enough grain supplies. We also know we have overall strong demand for grain globally, with the hope that trade issues with China can be resolved so the dire, ridiculously wide soybean basis will improve in this country. Obviously, the trade deals are of particular importance, but as equally great of importance is the value of the U.S. dollar. Remember, when our dollar is lower, it makes it cheaper for other countries to import our products, thus improving U.S. export demand. The dollar has been steadily climbing higher since April, as the Greenback has been viewed as a safe haven amongst the global strife.
The dollar will likely also react and respond to election results and any potential trade deal with China which will hopefully still start to be resolved in late November, when President Trump meets with Chinese President Xi.
Continue to keep an eye on crude oil. Earlier this week, crude oil futures were resting on long term support levels on monthly charts, so far that support level is holding, yet there is much uncertainty for crude oil prices as the supply and demand fundamentals clash, with political turmoil surfacing in the Middle East. Also supporting crude oil are the planned U.S. economic sanctions on Iran’s oil industry; set to take effect at the start of November. Due to the sanctions, supplies of oil from Iran are expected to diminish; global supplies will tighten, and prices may push higher.
Finally, when a market consolidates, or trades sideways, that means the current supply and demand tables are known, and outside markets are likely at a point of equilibrium. It is in these moments that you should focus on your marketing strategies for the months to come. Map out what your plan of action will be if prices start to work higher. Ask yourself these four questions. Where will you make cash sales? What steps will you take to protect unpriced bushels? Which outside market news events could capitulate the market? What is your plan if South America ends up having weather issues? In a time where so much can change things quite quickly, it’s more pertinent than ever to have a plan in place and be prepared. Stick to your plan, or hire someone that can help make those decisions for you.
Editor’s note: Naomi Blohm is a marketing advisor with the Stewart-Peterson Inc. and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at [email protected].
