Maybe it is just that time of the year. The harvest is about done, we have few weather worries, even with wheat, and grain market analysts are scratching for news bites that are big enough to have to chew.
The result is what we call a “range-bound” market. This market exhibits a trading pattern that uses small pieces of news, some small enough to swallow without chewing, to explain, after the fact, a small price swing that is quickly reversed by a differing nugget of almost-news.
The result is seen in the corn charts of the past few months. December corn futures are trading close to $4.17 as this is written, midnight going into the morning of Nov. 5.
We have seen prices higher and lower, but we have seen this price 18 times since the end of June. Most of that time, we have been between $4.35 and $3.85. That 50-cent range has defined everything that has happened and everything the market has talked about for more than four months.
Future trading
The last couple of weeks the talk has been about two differing opinions of future trading. We either are staying cheap or going cheaper because a huge crop is defining a supply glut that limits the upside of trading, or we are seeing the foundation of a demand market that will outstrip our supplies.
The demand scenario assumes that the current widening spreads prove that there is cash demand that is not being satisfied. The further demand argument is that there are production problems in several countries in this year’s crops and looming production problems in the Southern Hemisphere crop.
The problem with being a writer expressing an opinion on these two scenarios is that I can’t make up my mind. At the moment, I am willing to talk about them, but I am struggling with having a strong opinion.
I know what I want to believe. I raised grain too long to not want to believe in higher prices, even though, when the rallies came during my producing years, I was always ready to sell too soon.
As Stephen Stills wrote in his song, “Southern Cross,” “we never failed to fail, it was the easiest thing to do.” He was writing about a failed romance, but raising grain is similar. We fall in love with the grain in the bins and can’t part with it for cheap prices.
Election
This week, we have another reason to argue the direction of grain prices — the election. It is no secret that much is being written about the difference between our presidential candidates.
In an online Barchart article today, Angie Setzer delved into the prospect of a trade war coming back at us as an aftereffect of the election.
Hopefully, by the time this is written you will know who won, although it seems the reporting of election results are being slowed by modern technology and not hastened.
There are those who worry that a Trump election will be a negative to trade. In her article, Setzer looked at the impact of threatened tariffs, a favorite negotiating method of former President Trump. Indeed, between 2017 and 2018 we saw prices decline sharply as the government struggled to get agreement on the famous “Phase One” agreement with China. When we did finally get it after protracted negotiation, it was January 2020, and we had seen export demand decline by 800 million bushels.
It would be easy to believe that the decline in trade was because of the trade negotiations, and that is one fear that gets cited as a possible result of the election. In fact, one reason for the long run-up to an agreement was that the Chinese suffered through a rough period of swine disease wherein the hog herds declined so dramatically that their demand for soybeans and soybean meal also declined dramatically.
When the Phase One agreement was reached, it was based upon an agreed minimum dollar amount that the Chinese would spend. It was widely believed that the Chinese would never fulfill the agreement, but they did.
Problems with the Chinese since then have been more about some of their trade practices, and the fact that we can’t depend upon their government statistics as a starting point for estimating our market with them because they do not publish any government statistics.
Setzer makes the point that our current administration has in fact kept tariffs with the Chinese in place, so it may be a moot point how our public votes anyway. This all gets me wondering, wasn’t the Phase One agreement for three years? What happened after that? Will there ever be a Phase Two or Phase Three?
Increased consumption
The bright side of worrying about the effect of the election on ag export policy is that domestic and world consumption of soybeans has increased in recent years.
The world has increased consumption by 730 million bushels for food and fuel in the last few years. The U.S. portion of that is 370 million bushels.
In the past, we didn’t think about soybeans for fuel, but we are now flying jets on man-made fuel that is produced from soybeans. The biggest increase in fuel usage is in our country, but it is increasing in other parts of the world. New crushing plants are going online in the U.S. this year and next.
The trading partner that is most important to us always seemed to be China because of the implied demand that could kick in for soybeans. The surprise was that the Chinese bought vessels of corn, also.
The real critical trading partner is Mexico. We tend to take their business for granted as we have such a geographical advantage for export there. We can ship it on rail direct from elevators in production regions.
Now, imagine if our new president wants to enforce our southern border with heavy-handed threats of tariffs and economic sanctions. Will border policy be hurtful to ag export policy?
