I started 2025 thinking a new paradigm shift in agriculture was in the making. If you look up the definition of paradigm shift, you’ll see it’s an important change that happens when the usual way of doing something is replaced by a new way. Considering President Donald Trump’s agenda to change the way we do global business, I’d say that definition is appropriate, and my assumption for agriculture at the beginning of the year has support.
Corn has continued its upside bias since a change in outlook occurred in September 2024. The subsequent monthly WASDE reports have continued to cut carryover stocks for this year, putting importance on the need to exceed the March 31 acreage estimate of 95.3 million acres. A slight reduction in trend-line yields keeps stocks tight and there is room left for additional improvements in exports the rest of the year.
Lessons From the Large Speculator
Soybeans, once plagued by a return to another fundamental record crop in South America, especially Brazil, have performed better than expected. But looking at the price action (technically), a review of the outlook ahead is warranted lest we get too negatively biased.
The price discovery process depicted in the 15-year price chart gives a macro picture of soybean prices that largely goes unnoticed in the media. The chart shows some interesting aspects of the process of pricing based on known and unknown ramifications of supply and demand, thus price discovery.
A lot of emphasis is at times placed on the action of the “large speculator.” Not to be confused with most “funds” that are largely long on the market, the large speculator swings both ways. It is net long or net short and does so when there’s an opportunity. The large speculator is often proactive and not reactive — as so many analysts seem to be. I use some personal, proprietary research to form alonger-term outlook in addition to some conventional information that is reported weekly.
For example:
- The first reference point of KR1 means the first monthly key reversal is higher. A key reversal is testing the previous monthly low and high range and then closing above the previous high. Anecdotally, it suggests the market examined the previous monthly trading range and fundamentals compared with the current month and found a price greater than last month was warranted.
- The large speculator action as depicted by the histogram at the bottom of the chart began building a positive bias position seven months prior to the KR1 breakout above a two year sideways market (July 2018 to July 2020). In fact, the large speculator was net-long, a significantly large position long, before the peak occurred $8 higher and nine months later.
- Conversely, after the bullish news was well known and other conventional traders, producers and funds were buying higher and higher, the large speculator was taking profits. Someone has to buy when someone sells. The large speculator needs someone to buy his profit taking (selling).
- The media often state, “the spec has got to sell or buy his long position someday, and when he does, the door won’t be big enough for everyone to get out gracefully.”
- Note that the large speculator stayed net long for three years and was net-short at the end of December 2023 when the price broke $12.50. Is there not a lesson here?
- Last year, many reported the large speculator was overly sold and couldn’t do that forever, but it stayed short and was taking profits on short positions as producers were forced to sell at the end of August 2024. The large speculator was net long to start 2025, which brings us to today.
After the long eight-month sideways market, May futures were in the process of printing a monthly key reversal in April. Ironically, this is just what it did five years ago in August 2020. Coincidence you might think? Regardless, there are lessons to be learned that I have respected for decades.
Market Psychology
Learn where money flows and when from those who have millions of dollars at stake. The importance of market psychology can’t be understated. Obviously, large speculators are forward thinking and looking to sell or buy to make a profit.
The current situation tells me both corn and soybeans have potential in the paradigm shift we are watching develop. We are in uncharted waters and can not neglect the impact, whether it be positive or negative, of a paradigm shift in marketing and thus risk management. There is too much at stake to be naïve or caught unaware.
