After the drubbing last week, markets recovered sharply off retracements, especially soybeans and corn, which held their upward trendline, in place since August. For the week, corn recovered 8¢, wheat only 3¢ to 5¢ but soybeans a whopping 46¢ to penetrate new highs not seen in years. The rest of the soy complex followed along with soymeal up $4.00 and soy oil up nearly 2¢ per pound. So the decision of what to do with remaining unsold 2020 crops and temptations for 2021.
All this comes on a yet undecided election, although we pretty much have a good idea. The global resurgence of COVID-19 is unsettling as is the stronger likelihood of an U.S. shutdown especially if the political landscape changes. Yet the DJIA and NASDAQ rallied 1800 and 1045 respectfully, apparently likely a politically split Congress, Senate and presidency. The dollar was weak by 1800 points. We most certainly have not seen these kinds of markets in a long, long while.
Technically, every setback in grains has been an opportunity to buy. Soybeans have a tendency to move in three-waves, especially if on sound, fundamental demand and not necessarily on reduced supplies. A demand driven market is better but more difficult to manage. Instead of a rainstorm, one has to ascertain global demand and where price appreciation becomes demand negative. Thus far, soybeans have outstripped even extreme forecasts but have set up a third move that could equal past moves suggesting $11.40 to $11.50 is possible. It will rain in South America in time, and I would look for opportunities and/or abrupt changes in weather that negates additional strength.
Corn has not reacted necessarily as soybeans have. There have been no multiple year highs posted yet and no clear cut three-wave price movements. What corn has done is maintain the price trend by the channel lines with the most recent action the quick and decisive rebound this week off the low end of the channel, which is also the three-month uptrend and a smart retracement to exceed highs two weeks ago but also that which was made ironically a year ago the end of October similar to this year. Corn is now attacking that most recent high while still in the up-channel and just a few trading days before the November USDA report.
The USDA report is expected to reveal a production drop in yield and a realization by USDA that China will increase imports to 25 million tons. What USDA does with the demand side of the equation has traders and speculators believing in a bullish report for both corn and soybeans setting up for that final price thrust higher that will affect usage. All this in an uncertain political background of uncertainty and a future likely full of changes. One change I’ve written about over previous months is the common sense need for importing nations to build a strategic reserve just in case. It seems now that idea is catching on. Whether this means front-end loading of demand that will slack off later remains to be seen. Continued weather problems in South America could accelerate that demand.
One of the political changes, should Biden become President, will be for a new Secretary of Agriculture. Collin Peterson, D-Minn., lost his seat in Congress and would be a fine choice in my opinion. No one in the political area is more qualified and a proven supporter of agriculture.
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Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. 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 the advice we give will result in profitable trades. Past performance is not indicative of future results.
