Speculators Traded Plenty Of Bullish News As 2020 Closes BY JOHN MILLER
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he commodity markets continually consume an extremely wide range of situations from around the globe which creates various degrees of risk and uncertainty for each day that traders in this environ ment attempt to profit. It is the desire of most speculators to find that window of bullishness that continues to build upon multiple situations that add to the idea that a given commodity, or commodities, must be rationed and the way this happens is through price increases. Since late summer we have seen just this type of situation develop as indicated by the corn price chart (left) and soybean price chart (right) below. Since just early October, the March corn contract has rallied over 85 cents per bushel to approximately $4.90 per bushel which represents a level not seen since 2014. As impressive as that looks, they January soybean contract has rallied an almost $3.75 per bushel to just under $13.50 per bushel over that same time. Let’s discuss some of the key factors that have been driving this bullish environment and encouraging speculators to take such heavy measures of ownership in corn and soybeans.
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Ag Mag THEAGMAG.ORG
Up until mid-summer, the USDA reporting system felt that the US could still make a robust corn and soybean crop with some still hanging on to the idea of record production. By early August it was understood that the US grain crops had seen too much adverse weather, including the now famous “Derecho Storm’ that took out about 7 million acres in Iowa. With the demand for animal feed, ethanol, and exports starting to pick back up, speculators began taking an interest in planning for the possibility of tight supplies which to many still seemed an absurd idea. About the time we began settling in to the idea of an excess corn supply of less than 2 billion bushels and an excess soybean supply of less than 500 million bushels reports began to surface out of South American that the early planted crops their were suffering from low rainfall. By Labor Day, speculators started to understand that the reduced US crop size coupled with the uptick in demand (especially China) could not endure a short South American corn and soybean crop without higher prices to a level that might even start rationing demand. On the demand side, exports became the main focus as US domestic uses of corn and soybeans for ethanol and animal feeding was still in a rebound from Covid19 impacts. By fall, the Chinese hog herd had increased by 40 percent over the first of the year, and the Chinese were buying upwards of 70 percent of all exported US soybeans. The export inspections charts below (corn on right, beans on left) show how since September 1st has exceeded last year, and even far exceeded the 5-year average. The most recent decline is due to the Christmas holiday season and will recover shortly. As price kept climbing, China and other users kept buying. So now the game was afoot to see how high prices would have to go to find rationing among users, particu larly the Chinese feeding indus try. With a surge in demand firmly established by October, we began to see a constant reference to weather maps like the one below that illus trates the rainfall deficit across major corn and soybean growing areas of South America. If South American, primarily Brazil and Argentina, were to become unable to
