Weather and election results impact ag market outlook
Duane Lowry, senior risk manager and market research director at Silver Creek Commodities explains the effect current events might have on the grain market in a recent Ag Market Outlook podcast. Weather and the results of the presidential election are the two major uncertainties driving action in the marketplace, Lowry explains.
Election and weather
“The marketplace is more concerned about the uncertainty in election litigation, rather than either candidate winning the election,” Lowry says. “With crude oil under pressure, gasoline demand still remaining off and ethanol remaining a question mark for the future, these are real concerns which will probably become more heightened after the election.”
Lowry notes Biden’s election could give more credibility to the fear of the economy shutting down again, nodding to the effect the last shutdown had on agricultural markets.
Biden’s election also opens up the potential for China to take advantage of the opportunity to revisit trade agreements and rid tariffs. Though, he adds, either election would have resulted in a lull in agricultural exports to China.
“In talking about weather, there has been a lot of attempt and probably a lot of people holding long positions based on La Niña or recent dryness in Brazil and Argentina,” Lowry notes. “I haven’t seen any visual connection between day-to-day price movement and day-to-day forecasts, so I don’t think the markets are trading on weather, but some people are.”
Soybean market outlook
“The week before the election was a big deal in the marketplace,” Lowry states. “The soybean market tipped over and put in a sizable break at a time people were not expecting it. The same thing happened to corn.”
The soybean market has recently been front-loaded with demand and export sales, according to Lowry. He adds 2016 saw sales and exports at this level in the marketing season resulting in a decline from January through June, following front-loaded sales.
“I think this is a good warning sign to separate being bullish and excited about the amount of business, look at it as routine business and move forward,” he says. “Aggressive business in China very well may be part of an inventory building program looking at how much they have purchased from South American in January all the way through U.S. purchases. It doesn’t seem reasonable to think buying is associated with demand.”
South American values are underpriced compared to what the U.S. offers are going to be in February and March, Lowry explains. He notes a South American weather problem might be the only way for current U.S. soybean prices to remain where they are.
Corn market outlook
While Lowry expects the corn market to recover from much of the decline experienced recently, he notes there are some concerns at a fundamental level.
“Many people talk about corn basis being strong, which it has been and will probably remain strong, but it has become a popular expectation,” he explains. “If the corn futures market continues or establishes a longer-lasting correction period, the pressure on basis to strengthen will probably be further intensified.”
While most corn producers are near the end of harvest, many have been making sales on $4 cash bids. Others finishing harvest look at the price and decide to put their corn away.
“Once corn has been put up, it will become difficult for buyers to get cash corn in the pipeline,” Lowry notes.
Wheat market outlook
Weather has definitely impacted the wheat market, contributing to notable downturn.
“Parts of the U.S. Plains had moisture and parts of Russia’s wheat belt also saw an increase in moisture,” Lowry shares.
“It won’t be long before we go into the dormant winter season,” he adds. “At this point, no matter the condition of the crop going in, it is difficult for the wheat market to build a trend for this period.”
Lowry shares much of the wheat market is on the defensive, but longs to liquidate still exist, and the wheat market is vulnerable.
“It looks like wheat could lose 50 cents to corn, and looking at the corn price, we should have respect for 40 or 50 cents of downside risk,” he explains. “The combined effect puts wheat downside risk at almost a dollar.”
In summary, Lowry notes there is opportunity for uncertainty, volatility, disappointment and additional liquidation pressures thanks to the election and post-election results. He recommends being respectful of downside risk and performing a serious evaluation of inventory with considerations to whether or not producers should be holding inventory in an un-hedged manner.
Averi Hales is the editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.