Volatility was the defining characteristic of commodity markets in 2020 and experts are preparing for another unpredictable barrage of global agricultural market changes.
During Kansas State University’s Women Managing the Farm Conference, market dynamics expert and senior marketing advisor for Total Farm Marketing, Naomi Blohm, shared her best suggestions for being an overall better commodity marketer, as well as her outlook for the coming year.
Overall, Blohm said the grain marketing outlook for 2021 is encouraging. The consideration she sees is exactly what heights the U.S. markets are capable of reaching.
“The question becomes — with as friendly as this market is — how high can prices go?” Blohm said.
The first major market mover began with the beginning of Chinese New Year on Feb. 12, Blohm said. The annual event can result in a 10-day shutdown for the Chinese government, set to end around Feb. 22.
“We're not expecting to see any Chinese purchases show up in the daily export sales announcements or the weekly export sales announcements,” Blohm said. “It would be a surprise to the market if China actually did show up and do some buying.”
Blohm said price volatility and position squaring is normal around a holiday trading, whether for holidays abroad or national holidays — like President’s Day on Feb.15.
Beyond those early hurdles to the current climbing commodity price trend, Blohm said the USDA outlook forum, an unofficial report detailing planted acre predictions, could cause rising prices to stall.
“The USDA is going to come out and they're going to give their first official guesses for planted acres for the spring on Thursday,” Blohm said. “So the main planted acres report is not until March 31 but the USDA is going to give a guess and that's what the market is going to trade.”
Last year, U.S. farmers planted over 90 million acres of corn and currently trade is assuming the planting of 1 to 3 million more acres in 2021 due to attractive corn pricing, Blohm said. If USDA releases a larger number of predicted corn acres, it could put a damper on prices for the short.
“I expect on Thursday next week to hear a yield number of somewhere around 180 bushels,” Blohm said. “For what's going to get planted in the spring, [USDA] always comes back and use a trend line number — so even though it's been exceedingly dry in parts of the West and in the Midwest they're going to still assume that it's going to be a perfect crop until proven otherwise.”
On the export market front, Blohm said corn usage outside the U.S. has been solid, an exciting factor for the market.
“We're on track for 2.6 billion bushels right now for this marketplace,” Blohm said. “And that would be a record amount of corn exported with a good chunk of it going to all of our trade partners of Mexico or South Korea.”
Higher export rates combined with weather-related crop difficulties in some of the largest corn-producing states in the United States have drastically lowered corn ending stocks compared to 2019.
“If the perception is that the ending stocks are getting smaller and that's what makes prices rally higher,” Blohm said. “Here we have the ending stocks getting smaller 1.5 billion bushels — we haven't been this low, since we were coming out of the drought from 2012.”
If low ending stocks continue to be perceived by the marketplace, corn price will be supported going forward, Blohm said.
The Soybean Story
When soybean prices first breached the double-digit price barrier, it was a cause for celebration. Today, producers look back on that moment as the ignition point for soybean price explosion.
“We didn't understand the extent of the damage from the actual Derecho storm, we didn't understand the extent of the damage that the August weather had on the market and we didn't understand that China was actually going to show up and try to meet some of those requirements from that phase one deal,” Blohm said. “All of that pushed prices higher and higher.”
Many producers and agricultural market experts compare the soybean price situation to similar market conditions in 2008, a comparison Blohm said can lend clues to coming market dynamics.
“You can see in heading into 2008 prices had dramatic trading ranges all within a month's time and then, finally, the next month, it would take the next leg higher and then the next month, it would take the next like higher,” Blohm said. “Prices didn’t really peak until summer.”
Blohm said she believes soybean stocks are low in farmer’s hands and cash market prices could hit record highs.
“I would say we’re out and we're going to see the cash market go bananas this summer scrambling and trying to get their hands on any soybeans that might be out there yet,” Blohm said.
For new crop soybeans, producers should be prepared for planted acres reports to profoundly affect the market. Reports recorded 83 to 84 million acres last year, with new reports expected to project the addition of 6 or 7 million more acres than last 2019, close to 90 million total planted acres.
“We're going to see acres rob from cotton and some of the spring wheat acres not get planted and get planted to soybeans instead,” Blohm said. “There's a lot of expectation for everybody to be planting as much corn and soybeans as they can next year, so because of that please be aware it’s going to be hard for the new crop to gain traction on price.”
The USDA report issued this week will also use trend line yields, so Blohm expects big numbers to impact market excitement. Soybean ending stocks are slashed, with ending stocks around 900 million bushels just two years ago and 2020 year-ending stocks hovering around 120 million bushels.
“The market does not like it when ending stocks are down to this minimal level,” Blohm said. “Panic button is, if we go lower than 100 million bushels.”
Blohm said global ending stocks for soybeans are also lower, making global markets another interesting price factor to keep an eye on moving forward.
“Corn and soybeans are the friendly stories right now and wheat is the follower,” Blohm said.
Producer’s watching wheat’s monthly market futures chart will see a rounded or saucer bottom formation, Blohm said, an indicator that could indicate a price increase, especially if wheat doesn’t winter well. Additionally, some producers may choose to rip out wheat and plant corn or soybeans instead after evaluating price options.
“I think that you're going to see wheat demand increase as wheat is going to become a feed substitute,” Blohm said. “So my outlook for wheat, Chicago wheat and Kansas wheat, is friendly — I think you're going to see prices work higher in the summer.”
Blohm said Kansas wheat price continues to inch higher and higher, with some classic signals hinting at an upper price movement trend.
“Last month in January wheat had a bullish key reversal and we had another one back in August,” Blohm said. “So the wheat is doing some long term bottoming signals and it wouldn't surprise me if by summer we have $7 Kansas wheat futures.”
Overall, Blohm has high hopes for market prices and overall market dynamics in 2021, a much-needed outlook after a stress-filled 2020.