Summer is coming to a close, and yet the year 2020 is not coming to a close fast enough. Looking ahead there are likely going to be many twists and turns for agricultural commodities in the coming months. Sometimes it is tricky to know which fundamentals might move the market in any single day.
Here is a list to guide you and your marketing path as we go forward.
This pretty much speaks for itself. It is important to not only monitor weather events in the United States, but around the world as well. It’s getting dry in Argentina, extreme heat in the Arctic Circle near Russia and flooding is occurring in China. For quite a few years, the world has been blessed with plentiful amounts of food. Global ending stocks are deemed sufficient. However, we are always at risk of a catastrophic crop failure somewhere in the world. We saw in 2012 how one drought in a major producing region of the world made for a tremendous price rally. If the La Nina predictions come true, that could potentially become a major global event later this year and into 2021.
Heading into August, traders are eagerly monitoring the weather for soybeans. Right now the crop has the potential to be a record size. However as you know, August weather is critical for pod development. If there is any hint of poor growing conditions in the weeks ahead, the soybean futures prices will respond immediately. New crop ending stocks are right on the cusp of either burgeoning higher, or shrinking quickly depending on yield.
Right now the U.S. Department of Agriculture is projecting increases in demand for U.S. grain for 2020-21. Exports, ethanol, crush, feed and industrial use are all pegged to be higher than 2019-20. We of course know how an unexpected trade war, COVID-19 resurgence and political drama can potentially affect demand. While the demand outlook at the moment is strong, we quickly learned our lesson back in March and April that demand can fade fast. Primarily we continue to monitor the export demand, specifically to China.
Look who’s been importing soybeans and corn steadily for the past few weeks! Some feel that China may be replenishing reserves of many agricultural commodities. It seems as though China may be making good on the Phase I agreement. However, we are always one tweet away from a trade deal blowing up. Remember, regarding China, always watch what they actually do, not what they say.
The Chinese have recently been fighting horrific flooding in the rice-growing region of their country. This is something to monitor as rice is one of their primary food staples. While China will likely never disclose the true damage to the crop, we can monitor the imports of agricultural commodities. It will be important to monitor not just what the Chinese import from the U.S., but other countries as well.
The U.S. dollar
The value of the U.S. dollar has been creeping lower for the past three months. Its value is now approaching a decade long uptrend on monthly charts. Whether or not this uptrend holds or fails is something that trade is very eager to monitor in the months ahead. Remember, when the value of the U.S. dollar is low, it makes it cheaper for other countries to import our commodities due to currency exchange rates. Think back to 2007 and 2011. The value of the U.S. dollar was at historically low levels, and in those years U.S. agricultural commodity exports were strong. Those years also saw significant grain price rallies due to demand.
Keeping an eye on the managed money position is helpful. Every week the government puts out a report with the positions of the funds in the marketplace. It is important to track and monitor their positions. We like to keep track from a historical perspective as well. When they are extremely long (buyers) in the markets, it helps us to try to anticipate when a price high may be in. Likewise, when they are extremely short (sellers) in the market, it is helpful to anticipate when a price low may be near.
Balancing current market fundamentals and preparing for any scenario is key for success in marketing. The remaining weeks of summer will offer many twists and turns regarding the above fundamentals. USDA reports, COVID-19 concerns, Chinese demand, various potential wild weather scenarios to monitor and a presidential election year. Be ready!
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 firstname.lastname@example.org.