It may seem like years ago, but it was just last June that farmers reported selling $8 cash corn and $18 cash soybeans. Today, cash prices look much different, hovering around $5.50 for corn and $13 for soybeans.
There are several factors putting downward pressure on corn and soybean prices, something Arlan Suderman of StoneX Group outlined on U.S. Farm Report this weekend.
“Looking at the corn market, we’ve had a lot of export sales that have been canceled by China,” he says. “We’ve had some Chinese buyers in our office here over the past couple of weeks. And they point to the cheaper Brazilian supplies and the need to diversify away from the United States where possible, so they’re very actively buying that.”
Suderman says the cancelations from China have been ongoing, but a new development is also catching the market by surprise. Mexico, who is also one of the top buyers of U.S. corn, is now also shifting their buying interest to Brazil.
“Because of the rapidly increasing production in Brazil, we’re even seeing Mexico, our long dependent customer that has been buying 17 million metric tons a year, is now buying a lot of corn out of out of Brazil. Our customers are saying they really liked that Brazil corn and they’re not likely to switch back,” Suderman says. “We’re losing markets because of the ability of Brazil to expand production at a lower price.”
Cheaper and abundant crops out of Brazil are attracting more buyers. Those are creating a fundamental shift as the demand picture wanes. However, the other factor that’s playing into the rapid decline are what’s happening with fund buying.
“I’ve always told people in my career is that when the funds are buying, you want to sell it to them, and if you’re afraid to sell it to them, protect it with them and buy the put,” says Tommy Grisafi of Advance Trading.
Grisafi says when funds are buying, markets go up, which is what caused commodity prices to continue to climb last winter and spring.
“What’s happened the last three months ever since March options expired? We’ve done nothing but roll down, roll down. And when a market goes down, it looks cheap,” he says. “I’ll never forget being a trader during the NASDAQ debacle in the 2000s. Every stock looked cheap, and right now grains look cheap, but as we’ve seen in this week’s price action, they can get cheaper.”
He says whether it’s the CME Group or other exchanges around the world, margin calls happen daily.
“It’s hurt terribly, and in the very move in the funds that got prices up, are now getting us down,” Grisafi says.
