The story in U.S. commodity prices is changing quickly. From talking about the possibility of $12 soybeans in early December, to now staring at $13 soybeans on the board, commodity prices continue the race higher.
So, what’s driving the price surge? Joe Vaclavik of Standard Grain says it’s a number of things.
“We certainly have some of the better fundamentals in the grain markets, especially in the case of soybeans, and corn–but that’s to a lesser extent. We have some of the better fundamentals that we’ve seen in many years. There are people who think that we could legitimately run out of soybeans. I think the market will fix that problem through higher prices, reduced crush margins, that sort of thing.”
Vaclavik says while corn balance sheets aren’t as tight as what the soybean market is facing, the 2020 corn crop did come in much lighter than anticipated.
“We’ve also seen much, much better export business than people had anticipated. So, you certainly got some supply and demand factors.”
However, Vaclavik says you can’t ignore some of the non-fundamental factors continuing to drive prices higher. He says the main factor is the money flow coming into the agricultural markets.
“You also have some other factors like large money managers are very aggressively long in these markets,” says Vaclavik. “They’ve been bidding up the grain markets for months now. And I think that has something to do with the weaker dollar, maybe some inflationary fears, things along those lines.”
As the large money managers decide to make the ag markets their home right now, Mike North of ever.ag says you can’t ignore the risks of such long fund positions playing into the market right now.
“The big question right now is, ‘how much money do they have?’ As you look at their position, they are holding a record length in corn. And when you look at the size of the position like they have on right now, you wonder how much more can they go? Will this old crop number serve as a little bit of a high watermark for them? And will they be shaken out by any sort of slight change in news?”
North says the question of how much money that has to pour into the markets is fueled by one main change of events last year.
“With the amount of stimulus that’s floated into this market in the course of the last year by way of different packages from the government, nobody really has a great answer for that,” says North. “I think as we go forward, we’ll be testing that water to see how interested they are. I think Joe raises a great point with regard to inflationary concerns. We really saw them dive into that conversation as treasuries tapered off in October, and new money rolled into our market. So will they continue on that front? And will they see this as an ongoing play, given the trillions of dollars that have moved into this market in the course of the last six months.”
Watch the full discussion on U.S. Farm Report.
