We're Living in a Bull Market - What's Next?
Feb 01, 2021
By: Zack Gardner, Key Cooperative Grain Marketing and Origination Specialist
To say we’ve been in a bull market would be an understatement. Until January 22, where we saw corn drop $.23 and soybeans drop $.58, soybeans had rallied $5.60/bu and corn had rallied $2.10/bu since August. The best marketing strategy had been to just sit on our hands and wait because it seemed like no headline could phase this bull market.
The truth is, no one knows what this market is going to. We can’t even look at historical charts because they don’t apply to today’s market. 2012-2014 were supply driven markets, whereas this market is demand driven. An efficient market can’t find any more supply, but it can start limiting demand, if necessary. Currently there are numerous headlines/stories building on both sides of the fence - both bullish and bearish. At the end of the day, we don’t know which way the market will go but if we can make money at these levels, it doesn’t hurt to take some risk off the table.
The end-of-January headline, which drove the market, was that African Swine Fever (ASF) was popping up again in China. They saw over 1,000 new cases on a couple farms of China’s fourth largest producer, due to illicit vaccine usage. Since I’m always skeptical of data coming out of China, my first thought was that if China is telling us this, what’s the real number of new cases? My second thought is how will this impact their purchases of our soybeans? China has been buying our beans like crazy for the past four months, which coincides with what they were telling us about their hog herd being built back up to 90%. If their hog herd is going backwards, do they need all these beans they’re buying from us? They could always put what they’ve bought so far into a warehouse stockpile, but depending on how bad this second wave of ASF is, they might not need to buy any new crop beans from us.
An upcoming potential driver in this market is Brazil’s soybean crop. For the past month and a half, they’ve been getting widespread 2-5” rains each week. From what one of our Brazilian brokers has told us, their bean crop is good; not excellent, but pretty good. Recent estimates have their soybean production around 133 MMT. While estimated to yield slightly less, due to the dry weather early on, they’re still projected to produce a record crop due to their acreage expansion this year. How can this affect our market? As it currently sits, the market is ~$.22/bu away from shipping Brazil beans up to the Southeastern US for the April/May time frame.
If China needs the beans, Brazil will ship to China - keeping Brazil soybeans out of our market and keeping our soybean prices elevated. If China doesn’t need the beans, those Brazilian beans will find other homes and we’ll start building back our supply, dampening our soybean prices.
At the end of the day, no one knows what these markets are going to do. What we do know, however, is that the markets could go either way in a hurry and that we currently have ~$11.00 cash beans & ~$4.00 cash corn at the elevators this fall. If we were offered these prices at any point last year, would we not have taken them in a heartbeat?
To say we’ve been in a bull market would be an understatement. Until January 22, where we saw corn drop $.23 and soybeans drop $.58, soybeans had rallied $5.60/bu and corn had rallied $2.10/bu since August. The best marketing strategy had been to just sit on our hands and wait because it seemed like no headline could phase this bull market.
The truth is, no one knows what this market is going to. We can’t even look at historical charts because they don’t apply to today’s market. 2012-2014 were supply driven markets, whereas this market is demand driven. An efficient market can’t find any more supply, but it can start limiting demand, if necessary. Currently there are numerous headlines/stories building on both sides of the fence - both bullish and bearish. At the end of the day, we don’t know which way the market will go but if we can make money at these levels, it doesn’t hurt to take some risk off the table.
The end-of-January headline, which drove the market, was that African Swine Fever (ASF) was popping up again in China. They saw over 1,000 new cases on a couple farms of China’s fourth largest producer, due to illicit vaccine usage. Since I’m always skeptical of data coming out of China, my first thought was that if China is telling us this, what’s the real number of new cases? My second thought is how will this impact their purchases of our soybeans? China has been buying our beans like crazy for the past four months, which coincides with what they were telling us about their hog herd being built back up to 90%. If their hog herd is going backwards, do they need all these beans they’re buying from us? They could always put what they’ve bought so far into a warehouse stockpile, but depending on how bad this second wave of ASF is, they might not need to buy any new crop beans from us.
An upcoming potential driver in this market is Brazil’s soybean crop. For the past month and a half, they’ve been getting widespread 2-5” rains each week. From what one of our Brazilian brokers has told us, their bean crop is good; not excellent, but pretty good. Recent estimates have their soybean production around 133 MMT. While estimated to yield slightly less, due to the dry weather early on, they’re still projected to produce a record crop due to their acreage expansion this year. How can this affect our market? As it currently sits, the market is ~$.22/bu away from shipping Brazil beans up to the Southeastern US for the April/May time frame.
If China needs the beans, Brazil will ship to China - keeping Brazil soybeans out of our market and keeping our soybean prices elevated. If China doesn’t need the beans, those Brazilian beans will find other homes and we’ll start building back our supply, dampening our soybean prices.
At the end of the day, no one knows what these markets are going to do. What we do know, however, is that the markets could go either way in a hurry and that we currently have ~$11.00 cash beans & ~$4.00 cash corn at the elevators this fall. If we were offered these prices at any point last year, would we not have taken them in a heartbeat?