The Markets are Winding Up
Aug 06, 2021
By: Zack Gardner, Grain Marketing and Origination Specialist
The markets are winding up.
Right now it feels like the calm before the storm. We were seeing $.40 swings on corn and $.90 swings on soybeans with no major headlines and now we are seeing day after day of $.05 moves. On the charts, both corn and soybeans are in a narrowing triangle destined for a breakout in one direction or the other.
What will the headline or market moving event be?
Could it be these August rains (or lack of)? Beans are made in August and if we don’t start getting serious rains we could easily see some aborted pods. With how tight our bean carryout is, it would only take a 1.8 bpa loss on bean yield nationally to put us into severe demand rationing mode as we would have a zero bushel carryout (surplus at the end of the year). As for corn, the market paid to apply fungicide to lengthen our kernel fill window. How big of a difference would getting a half inch of rain versus 2 inches make in that kernel fill time frame?
Could it be this second wave of COVID-19 in China? China has a zero tolerance policy for COVID. Just last week, China put the port city of Qingdao under a soft lockdown and ordered testing on the 10+ million residents due to 13 positive COVID cases in the city. A couple days later (last Thursday), the total country of China had 80 cases. My biggest fear in this market, is if China goes into total lockdown during our peak soybean export season (Sep/Oct/Nov) due to rising COVID cases. We currently have 390 million bushels of new crop soybean export sales on the books. If we couldn’t ship that due to China’s ports being closed, it would take our soybean stocks-to-use ratio (percent of production that goes unused each year) from 3% up to 13%. For reference, that’s about halfway back to our 2018 stocks-to-use ratio of 23%, where we had $8.00 beans.
Those are the two big ones in my mind, but there could always be a black swan event like a blue administration passing a bill about ethanol not being clean enough or Brazil switching bean acres over to corn this fall on top of their anticipated acreage expansion. Long story short, we don’t know what’s going to happen in these markets, but there is risk to mitigate and profits to take. Selling this falls crop is a pretty easy decision as we had relatively affordable inputs, high grain prices, and we know our insurance levels. Where it gets tricky is starting to market our fall ’22 crop. We are hearing ammonia prices in the 7 and $800/ton range, but we don’t know our insurance floor and corn could drop after we lock in ammonia. With fall ’22 corn around $5.25 cash today, there’s some room to utilize options to our benefit. Whether that’s locking in floors, retaining upside market potential, or just overall profitability spreads, we can help.
The markets are winding up.
Right now it feels like the calm before the storm. We were seeing $.40 swings on corn and $.90 swings on soybeans with no major headlines and now we are seeing day after day of $.05 moves. On the charts, both corn and soybeans are in a narrowing triangle destined for a breakout in one direction or the other.
What will the headline or market moving event be?
Could it be these August rains (or lack of)? Beans are made in August and if we don’t start getting serious rains we could easily see some aborted pods. With how tight our bean carryout is, it would only take a 1.8 bpa loss on bean yield nationally to put us into severe demand rationing mode as we would have a zero bushel carryout (surplus at the end of the year). As for corn, the market paid to apply fungicide to lengthen our kernel fill window. How big of a difference would getting a half inch of rain versus 2 inches make in that kernel fill time frame?
Could it be this second wave of COVID-19 in China? China has a zero tolerance policy for COVID. Just last week, China put the port city of Qingdao under a soft lockdown and ordered testing on the 10+ million residents due to 13 positive COVID cases in the city. A couple days later (last Thursday), the total country of China had 80 cases. My biggest fear in this market, is if China goes into total lockdown during our peak soybean export season (Sep/Oct/Nov) due to rising COVID cases. We currently have 390 million bushels of new crop soybean export sales on the books. If we couldn’t ship that due to China’s ports being closed, it would take our soybean stocks-to-use ratio (percent of production that goes unused each year) from 3% up to 13%. For reference, that’s about halfway back to our 2018 stocks-to-use ratio of 23%, where we had $8.00 beans.
Those are the two big ones in my mind, but there could always be a black swan event like a blue administration passing a bill about ethanol not being clean enough or Brazil switching bean acres over to corn this fall on top of their anticipated acreage expansion. Long story short, we don’t know what’s going to happen in these markets, but there is risk to mitigate and profits to take. Selling this falls crop is a pretty easy decision as we had relatively affordable inputs, high grain prices, and we know our insurance levels. Where it gets tricky is starting to market our fall ’22 crop. We are hearing ammonia prices in the 7 and $800/ton range, but we don’t know our insurance floor and corn could drop after we lock in ammonia. With fall ’22 corn around $5.25 cash today, there’s some room to utilize options to our benefit. Whether that’s locking in floors, retaining upside market potential, or just overall profitability spreads, we can help.