Head to Head: Market Factors to Watch

Head to Head: Market Factors to Watch

Q: Grains prices have climbed out of a pretty big hole over the last three months since forging lows on Oct. 1. What are the main factors to which you attribute this strength, and what would be the main driving factors in your outlook for the grain markets over the months ahead?

Angie Maguire     
Vice President of Grain, Citizens LLC

Follow Demand, Money Flow and Weather

Coming into harvest, many analysts and traders anticipated an overwhelming wave of grain to hit the marketplace. The idea we could be awash or drowning in grain was widely discussed, and the worst was feared.

However, weather weighed heavy on harvest progress, limiting the flow of grain. This slow movement in the cash market—combined with an already relatively tight pipeline, increased storage space and heavy front-loaded demand—led to a rally in the cash market that quickly spilled over to futures. A general oversold position led to short covering by funds, while outside economic developments had some investors seeking a tangible product to invest in rather than paper. The idea that demand could be higher than current USDA projections—or that perhaps production estimates are too high—has lent some support to the market, as well. 

Money flow, demand adjustments and weather will be the key focus in the months ahead. Geopolitical and economic developments across the globe will also likely have a major influence on the direction of the market. Volatility will remain until crop size is confirmed late this summer.

Randy Martinson     
Managing Partner, Progressive Ag Marketing

Expect Wheat and Corn to Retain Strength

Since Oct. 1, grains have had much better strength that most expected. Wheat’s strength mostly has come from reports of a potential slowdown in exports from Russia as well as potential global production issues. 

Corn’s recovery has not been as impressive, mainly because of record production estimates. Demand has slowly increased, pushing corn higher. Export demand, and the idea that feed demand could see a slight upturn, is keeping corn off its lows. Meanwhile, USDA has decreased ending stocks. 

Soybean demand has been nothing short of amazing. With 25% of the soybean marketing year complete, the pace of U.S. soybean export shipments is close to 60% of expectations, while sales are over 88% of pace. Meanwhile in Brazil, the beginning of January brought forecasts of warm and dry weather, which has pushed prices. 

The soybean market appears to be awaiting confirmation of solid production potential for South America or higher U.S. acreage. If both occur, it will be hard for soybeans to hold strength. Wheat and corn should continue to see strength. Wild cards are the U.S. rallying dollar and declining energy markets.

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee that the advice we give will result in profitable trades.



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