Marlin: Grain markets finish the year strong

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grain storage bin
(Chris Kick photo)

Grain futures markets on the Chicago Board of Trade made new life-of-contract highs as we finished the year, and then made new highs Jan. 4 and Jan. 5.

It would be expected that, after a contra-seasonal rally of large proportions, traders would have taken profits before the end of the year, causing markets to go down. In fact, we stayed strong, as traders are not ready to give up on this record rally.

Riding the high

Corn and soybean prices are now the highest in 61⁄2 years. They have regularly made new highs, and did so Dec. 31, before the holiday, and then again Jan. 4, after the holiday. March Chicago wheat futures finally made new highs Dec. 31, and have added to the chart Jan. 5, as this was being written. The corn is off the high, but soybeans have made another new high.

March corn futures were trading at $4.871⁄4, up three and a half cents Jan. 5. That was off the Jan. 4 high of $4.973⁄4. March soybeans were trading at $13.383⁄4, up 25 cents. The high was made overnight at $3.491⁄4.

March Chicago wheat futures were up over 10 cents, at $6.521⁄2. The high was Jan. 5, a penny above that. The wheat futures had been trading below the old high until Dec. 31.

Rally factors

A combination of factors are contributing to the current rally. We are seeing strong corn exports to China, as the soybean shipments will taper off as they will switch to South American origins, but the corn exports are increasing. Corn exports, and ethanol exports, to China are a new thing, and the market is getting adjusted.

Then, there is the continuation of weather problems in South America, which is helping soybean prices. The crop was planted late, delaying the switch to South American origins for beans. The late planting was a result of waiting for rain.

Most areas are still dry, although it is hard to determine the damage to a crop when the area normally has surplus rain. Thus, less rain does not necessarily mean smaller bean yields. Some analysts are cutting bean yields and have warned of likely further cuts.

The U.S. Department of Agriculture has cut the size of the projected soybean carryout so that we may get short of supply this summer and continue a rally from the demand side. Talk is currently about the struggle to increase soybean acres.

Declining dollar

Then we have the declining dollar. In the short run, this helps our grain be cheaper in foreign markets and helps our prices. The dollar is getting down near the 2018 low on the dollar index. We are now below 90 cents.

Last week, the concerns in soybeans involved several South American port strikes, added to the farmer reluctance to sell beans into a currency collapse. There is value in holding soybeans when the currency gets cheaper every day. Beans in the bin represent hard currency.

This week, we saw an end to the strikes, and assumed that would yield lower prices. In fact, we kept closing sessions strong, even with bearish news in the session. March corn futures were up 33 cents for the week.

Inverses between old and new crop years continue to grow in both corn and soybeans. So, we have prices that should be sold, but the market seems to still go up. We have new crops to sell, but at prices a lot lower than the old crop.

Decisions are hardest to make at the top, and, with most of the crop year to go, we have no idea what the top looks like.

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