Market analysts think grain markets are at the beginning of a sustained rally that could see strong prices for two years
A bull and a maybe-bear both agree that now is a good time to be making sales of the main crops.
After a strong recent rally, today’s prices are worth picking up for at least some of this year’s crop, Canada’s Outdoor Farm Show heard.
“Odds are in my favour that if I sell at these prices it’s going to be one of the best prices in the last five years,” said StoneX’s Bailey Elchinger about corn, soybeans and wheat.
“It’s not that it can’t go any higher. It’s that it’s given me a gift and I’d better reward it.”
In a different presentation at the Outdoor Farm Show, Mike Jubinville of MarketsFarm also suggested farmers take advantage of the rally and make some sales.
“Price something into these rising markets,” said Jubinville.
“Don’t think that you can pick a top.”
Neither analyst predicts that September prices are the top of the market. Jubinville suspects grain markets are at the beginning of a sustained rally that could see strong prices for two years.
Elchinger thinks prices are entering the territory where they have generally begun to top out over the past five years but are still beneath peaks that were previously hit.
However, with prices well above where they were midsummer, making some sales now makes good sense.
“I’ve been very comfortable when I see profitable pricing opportunities to incrementally sell into rising markets, so I can sleep well at night,” said Jubinville.
Elchinger’s semi-bearish view is based upon a lack of fundamental factors to drive corn and soybean prices higher, in her view.
Massive Chinese demand is already built into the market, with United States Department of Agriculture expectation setting a level of exports that will be daunting for the U.S. to meet.
U.S. production estimates have been falling due to dryness and other weather challenges since August, but those too are priced into the market, she believes. If corn, soybeans and wheat yield as now expected, stocks will not be low enough to force prices to surge by themselves.
“I think it’s comfortable,” said Elchinger.
“That’s not a demand-rationing type scenario.”
For prices to retain their current level or rise, there probably needs to be even greater demand from China, or South America to have weather problems. Without those, it will be hard to hold on to prices in the upper reaches of the five-year range.
“It’s built on a bit of a house of cards,” said Elchinger.
“I don’t think we need to ration demand at this point. I don’t think we need to run (U.S. corn prices) back to three bucks on the futures side, but I don’t know that we have to ration demand.”
Jubinville sees things quite differently.
He thinks the grain markets are likely just at the beginning of a sustained rally.
“I suspect we are probably turning a corner here,” said Jubinville.
“It would seem to me we are entering a period of demand-driven bullishness in the grain markets.”
China’s demand for soybeans and corn is voracious and until now it has been sucking in all the South American crops it can and working down its once large stockpiles of crop.
China’s booming purchases of U.S. soybeans recently aren’t an attempt to curry favour with U.S. President Donald Trump, who started a trade war with China in 2018.
“This isn’t just about China trying to do a favour,” said Jubinville.
“They just need those beans.”
With China’s stocks running down, U.S. production estimates falling and South America facing a La Nina that could hurt production, continuing strong Chinese demand could keep prices strong.
Jubinville has long followed a “two, two and two” philosophy about how the grain markets work. Going back to the beginning of the 1990s, grain markets tend to rise for two years, fall for two years, then go sideways for two years.
Jubinville was expecting the next two-year rise to begin in 2018, but Trump’s trade war scotched that in terms of North American exports and prices.
However, recent Chinese buying suggests that China’s ability to hold off purchasing U.S. crops is weakening.
Both Jubinville and Elchinger think farmers should take advantage of the present rally to be making sales of new crop regardless of where prices end up.
“The trend is up,” said Jubinville.
“One should be scaling sales into a rising market.”
Elchinger thinks that farmers should note corn prices’ tendency to reverse near the $4 per bushel level and consider how likely they are to break through it to levels seldom seen in the past five years.
“We’ve made a nice move in corn,” said Elchinger.
“I’m still in the camp that you’d better reward that type of a move.”