One of the core principles of a marketing plan is to put grain growers in a position where they can make a sale in order to take advantage of rallies as they occur and, even more importantly, to eliminate the need to make a sale at times when circumstances are not desirable.
There are a couple of reasons why commodity prices might come under substantial pressure this fall. The first of these is fairly obvious. If North America does not have record corn and soybean yields from the 2020 crop, we are likely to be very close to the record, which of course overwhelms the marketplace with supply and puts downward pressure on price.
In their August 12 report, the USDA predicted 2020 corn production at 15.276 billion bushels, 12 % bigger than last year’s 13.6 billion bushel crop. In terms of soybeans, the USDA’s August estimate of the 2020 production was 4.42 billion bushels, a 24% increase over the 3.55 billion bushels produced in 2019. We could spend some time speculating about farmer’s cash flow needs and whether or not that will impact the amount of grain being sold this fall, but the simple reality is that the combination of corn and soybean production in 2020 is about 2.5 billion bushels bigger than last year, which is likely to create a significant jam for space. Agri-business hasn’t built 65-million tonnes of new grain storage since last year, so it’s entirely reasonable to anticipate a storage space issue late in harvest.
When grain handlers run out of space it forces sales. If a farmer needs to move a few loads of corn in order to make the bin space to finish harvesting the last acres, he’ll do it and if elevators need to push out corn so that they can make enough space to continue receiving and earning drying revenue, they’ll do that too. What makes prices go up is sellers who are prepared to say “no” if they can’t get the value that they’re looking for.
The second consideration is entirely political. The United States is having an election on November 3 and based on several recent comments from the Republican presidential candidate, if the result is anything other than a clear Republican win, we should expect to see a legal challenge to the election process, and that degree of political uncertainty might rattle the markets, potentially for weeks as the process sorts itself out.
Twenty years ago in 2000, the U.S. presidential election pitted George W. Bush against Al Gore. The results were so close that Florida had to be recounted, and all of the major markets, (particularly the NASDAQ), had pretty rough sessions the day after the election. The markets shook off the controversy fairly quickly but there wasn’t any debate about the integrity of the election process. Regardless of who would ultimately win in 2000, there was not a radical difference in economic policy between Gore and Bush.
The situation in November could be far more controversial. The potential exists for court-supervised recounts in several states and perhaps even challenges to the integrity of both voter lists and the entire balloting process. Markets tend to dislike uncertainty, and drawing the legitimacy of the American democracy into question would simply reek of uncertainty.
Assuming that cooler heads prevail, we should be able to get past the US Presidential election without putting the stocks, commodities and currency markets on their ear. But the November market has the potential to be a mess, so why even plan to be there?
The opportunities for farmers to forward contract their 2020 crops at good prices have presented themselves a few times over the past 18 months and it is certain that many producers have already forward priced a significant portion of the crop that they will want to turn into cash at harvest. The marketing objective over the next month is simply to have a strategy to deal with any additional grain that’s going to need to move in order to create either space or cash through the harvest period.
Price rallies through the harvest period are not unusual but typically they develop when crops are small, and growers are reluctant to make sales. At the speed that demand is burning through the supply, we’re more apt to see a shortage of storage space pushing grain into the market and pushing prices down than a scramble by buyers creating a price rally.
If farmers can put themselves into a position where they can avoid making sales between October 15 and December 15, it would be advisable to do so.
Steve Kell operates a crop farm in Simcoe County and is a former grain merchant for Parrish and Heimbecker Ltd.
