LOUISVILLE, Ky. — The grain market pens should be full of bears, yet it appears bulls are also hiding in the corners.
Darin Newsom of DTN/Progressive Farmer told the National Farm Machinery Show in Louisville that despite nearly every fundamental reason for the grains and oilseeds markets to be bearish, they actually aren’t.
He feels the markets might have posted their near-term lows.
“Corn supplies are at record level. Soybeans too… and wheat,” he said.
“China is not buying the way they were. Everything tells us the markets should be (going lower). But there are clear indications that isn’t the case.”
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The analyst pointed to spreads between futures months and nearer term basis levels, which he said should be much tighter than they are, considering the pressure they are under from large inventories.
He said grain merchandisers will soon be coming into the market to buy cash corn, which is one reason why the market is higher than it might otherwise be.
Another factor is the continuing rise in domestic demand for corn, which could rapidly eat up the significant spread between supply and demand.
A December to March market for the 2015 new crop has reinforcing these factors. It fails to show any interest in speculating on another huge corn crop or carryout or a shortfall of current production expectations.
Many reports have indicated that American producers are expected to grow almost the same amount of soybeans and corn acres this year. Corn typically leads by a significant amount.
However, Newsom isn’t buying it.
He feels growers will keep most of their rotations in place rather than turn to soybeans for that crop’s lower input costs.
He said the corn market has reached it lowest ebb in a 2012 to October 2014 downward trend and will now move higher until 2017.
He expects corn to rally to US$4.40 until early May and for new crop prices to be $4.30 to $4.50.
He said soybeans are also more bullish than most believe they should be.
“I think demand out there is stronger than people think.”
Newsom said he hopes the new crop, November $9.27 1/2 price was the low and that cash prices will remain in the $9 to $10 area.
“Wheat should be really bearish, but it isn’t,” he said, pointing to an inverted market that usually occurs only when it is bearish. It sees March futures trading at a premium to May.
As well, the U.S. basis on wheat remains strong. Sideways moves for new crop soft red winter wheat on the Chicago market also points to a lack of faith by buyers that they can secure the wheat they need when they need it.
Weather is the wild card that seems to be working in wheat’s favour, said DTN/Progressive Farmer agricultural meteorologist Bryce Anderson.
Recent temperatures of 20 to 28 C in the southern wheat growing areas of the U.S. are suspected to have brought some of that crop out of dormancy, and cold weather is now returning. This could damage the crop’s prospects for yield later on in the year by reducing plant populations.
Newsom said old crop wheat will likely settle into the $5.15 to $5.45 range. The new crop July contract is $6.30.
“Somebody wants this wheat. We don’t know who yet, but somebody is out there.
Anderson said it should be a good growing year for North American producers, outside of the southwest. He said a small El Nino is in play, which will help secure a drier trend at seeding and an earlier start to the year.
Newsom feels that good news about the potential for more record crops would have been priced into the new crop by now if the market was truly bearish.
“But if you’re looking to move some old crop, look for opportunities in April and May, and if there are any weather scares, it might be time (to price some new crop),” he said.
Contact michael.raine@producer.com
