One indicator of a bull market looking for news is that prices are volatile. This is true of corn, soybeans and wheat on the Chicago Board of Trade these days. In addition to volatility day to day, we also have remarkable volatility intra-day.
Insomnia had me at my desk at 3 a.m. Jan. 26, to hear my computer “bing” as the first trades came in. March corn was up 11 cents, March soybeans were up $313⁄4, and March wheat was up 14 cents. This came after a huge downward correction Jan. 22, and then a higher market Jan. 25.
In one hour, however, the bounce was gone. The corn futures were only up a quarter of a cent, soybeans were down one and a quarter, and wheat was off three cents.
When we started trading with everybody awake (and after I got three hours sleep), we were holding a firm rally. The lead month corn was up $101⁄2 the soybeans were up $191⁄4, and the wheat was up five cents. I am trying to decide if this intra-day volatility means anything, or thinly traded markets in the middle of the night are erratic.
Up and down
Corn and soybean futures made new life-of-contract highs last week, and then made a sharp correction. These things happen. We are at the highest prices of six and a half years, and traders are nervous.
On Jan. 20, the March 13 corn futures made a high at $5.411⁄2; Jan. 25 we made a recent low at $4.921⁄2. That is a 49-cent loss in three sessions. However, the corn closed back up at $5.111⁄2.
March soybean futures made a high Jan. 13 at $14.361⁄2. By the Jan. 25, we were as low as $12.98. That is a range of $1.381⁄2 cents. Now that’s a correction!
The morning of Jan. 26, however, we were trading back to $13.633⁄4, a bounce of almost 65 cents. It is scary to see these big dips in a major rally. Every time there is a big move down, it feels like the party is over, and we missed the top, looking for even higher prices.
In fact, this volatility is normal, and several large corrections can be expected as the market goes higher. Market psychology determines that, as some point, speculators take profits, and the markets decline, looking for new buyers, or old buyers getting back into the market.
News driving market
There is a lot of news driving this market. We are trying to sort out the implications of the current COVID situation, even as there are conflicting reports of what that situation is. Cynics notice that, now that the new President is in, there is a move to open schools and businesses.
Weather is South America remains bullish to prices, as the soybean crop has been downgraded by several significant observers. Good export news is driving the corn and soybeans, as 94.5% of the U.S. Department of Agriculture (USDA) export expectation to China has already been booked.
Arguments discussing the recent USDA reports have some traders thinking we could have carryout for corn the end of August as low as 1.2 or 1.3 billion bushels. This is tight, and would require rationing. We started the year thinking it would be more like 3.1 billion bushels.
Soybean carryout is also getting lowered, with private estimates talking about numbers as low as 60 or 70 million bushels. That is critically low.
Add to this mix the arguments about planted acres. Analysts say we need to plant 91 million acres each of corn and soybeans, and we have never planted that many total acres. Where do they come from?
So, seven months to go in the marketing year, and there are a lot of question marks. We can expect volatility. We can also expect that the party is probably not over.
We are seeing great sales opportunity for old and new crop, although the new crops are at a huge discount to the old. That is normal with rallies. We are tempted to sell, and tempted to wait for higher prices, even as this week we got spooked by big price breaks.
