August started out as a month producing stagnant prices, but as the month comes to close, sentiments are shifting. As dryness plagues portions of the Corn Belt, crops are shutting down prematurely, bringing an early start to harvest. At the same time, China renewed its commitment to the Phase One trade deal and continues to ramp up its buys of U.S. ag products. So, is it a weather market or added demand driving higher prices? Joe Vaclavik of Standard Grain thinks it’s a combination of both.
“I think on the supply side, you’ve probably got corn and soybean crops that are perhaps a little bit smaller than what we thought they were a month ago or even three weeks ago,” he says. “We’ve seen dryness develop. We had the storm in Iowa. We’ve had some crop issues that seem to be emerging. So that’s part of it.”
Vaclavik thinks the other side of the equation is an improving demand base, one he says is becoming strong.
“We have the best new crop export sales booked for soybeans on record,” he says. “We have very strong corn export sales, and feed demand is good. Soybean crushes are good. Ethanol would still be the area that we’re lagging in terms of demand.”
With the added momentum in demand, Bill Biedermann of AgMarket.Net thinks USDA is lagging on adjusting the U.S. and world balance sheet.
“Our new crop carryover projection that we are using is 2.289, so you can call it 2.3, and the USDA is at 2.756,” says Biedermann. “There’s a significant difference of what we in the industry are using and USDA. Let me just give you one quick example: USDA, in their world numbers, is still using a 260-million-ton crop for China, which is the same as they’ve had for the last four years. There’s no way—not with the droughts, floods and armyworms. And same with their imports. They’re using the exact same import numbers last year at 7 million metric tons. Our tally today is they’ve already bought 7.8 million metric tons. So, I don’t know why USDA didn’t change it. I expect they will here very soon.”
Whether the shift in prices is due to a potentially smaller U.S. crop, or the boost in demand, Ed Usset of the University of Minnesota says the fact demand is playing a role in the markets means these higher prices may be more sustainable.
“I love demand-driven markets,” he says. “They’re more sustainable. They have more staying power and demand is still good.”
Usset agrees with production problems that are popping up, there’s room for USDA to adjust their national crop estimate lower, but he says the U.S. isn’t running out of corn.
“We’ve just had little bits of news here and there and nothing grows the crop, it all takes away a little bit,” he says. “We’re still going to have a big crop, make no mistake about that, but it’s getting a little bit smaller, not larger.”
As the market sentiment turns bullish, Vaclavik says the bottom line for farmers needing to market grain is to nail down the overall production estimates for your individual farm. He says with the recent shift in weather, he knows estimating production can be difficult, as farmers don’t know exactly what they’ll harvest.
“What I’ll say about marketing in general is that the best opportunities occur, typically, when everybody’s bullish: when the funds are heavily long and when we’re into some multi month highs,” says Vaclavik. “You’ve got all of those things going on in the soybean market. We’re not quite there in the corn market, we still got funds to short, we’re still not even back to some of the more recent highs in the corn market, but in the beans in particular, there’s a lot of things here that tell me that this could be some sort of marketing opportunity.”
Biedermann says as harvest quickly approaches, the biggest risk is if the market sees increased farmer selling based on fear.
“You’ll probably see some producers selling into that based on fear that they missed reselling at the summer high,” adds Biedermann. “I think that’s going to be short-lived. I think a lot of grain is going to be put into the bin. We’re planning on putting the corn under loan. I think the other outside risk is economy.”
While he warns the economy could be an outside risk, he says that piece of the puzzle may actually favor ag commodities. He thinks economic concerns could weigh on the Dow Jones, while driving interest to a safer investment, like the commodity markets.
