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$6 Corn? $15 Beans? Hang On Tight Its Going To Be A Bumpy Ride

Jon Scheve

January 31, 2021

Market Commentary for 1/29/21

Market volatility is expected to continue for a while. Much of the 2020 US corn and bean crop has been sold and China’s demand remains impressive. Even South American farmers have sold 50% more of their new crop beans than usual by this point.

Therefore, many are uneasy about shorting the market as its uncertain who can still sell into this rally.

Corn China purchased a lot of corn this past week, so the market now expects upcoming USDA reports to show increased export values and lowered carryout. A corn rally may be needed to help ration what is left until harvest.

South American weather has turned from dry to wet. Parts of Brazil are experiencing bean harvest delays due to wet weather, which could push back their second corn crop planting. This delay may push corn pollination on the second crop into late May when weather is drier and may reduce yields. Argentina has had adequate rain this past week, which should stabilize yields. However, there will still be dry pockets, so final yield estimates are unclear.

Once US beans are moved out in February, US corn export pace usually picks up in March through July 4th when South America’s exports become available. This could mean increased demand for cash corn in the upcoming months.

With higher prices, some domestic end users will need to curb usage. Alternative feed sources, like wheat and feed by-products, have had demand and price increases too.

US corn prices continue to be the most economical globally. Spreads between futures contract months are very narrow or even inverted, indicating grain is needed now not later. Also, basis values have traded off the low levels from a couple weeks ago as end users search for more corn in the coming months. These factors could be indicating higher prices as spring approaches.

Beans Brazil planted beans a few weeks later than normal last October. This is pushing their harvest back into February and has caused a need for more US exports for this time of year.

The latest USDA report showed the tightest carryout in over 20 years for a January report. If there aren’t any sizeable export cancellations, the US could essentially be out of beans by mid-summer. With much of the US bean crop already exported, large cancellations are becoming less likely. This could mean higher prices will be needed to ration demand of the remaining US beans.

Soybean meal demand continues to be strong as processors grind at a record pace. Indications suggest US processors have enough supply to cover needs through May. However, their summer needs and coverage are very uncertain.

Demand Market Chinese demand for US corn this season could be 4x larger than any previous year in history. This unexpected demand increase is likely due to yield reductions at the end of their growing season and a faster than expected increase in hog production in confinement buildings.

As corn and bean demand increased, many other commodities like metals, energy and other grains are also experiencing large rallies too. Some of this may be due to a weak US dollar and the potential for inflation in the general economy. Therefore, this increased demand may last longer and cause prices to remain higher than those of a weather driven market rally.

The market will not likely go straight up. Instead, volatility like this past week where prices traded up 10-20 cents and then down 10-20 cents in the same trading session with little reason or explanation will continue. Time to buckle up because it’s going to be a bumpy ride.


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