Grain markets are green again as strong corn & soybean exports sales support the fundamentals and cheap money is increasing speculative activities.
“I am for doing good to the poor, but I differ in opinion about the means. I think the best way of doing good to the poor is not making them easy in poverty, but leading or driving them out of it.” – Benjamin Franklin (United States of America Founding Father)
Soybean Exports or Federal Reserve Driving Rally?
Grain markets are green again as strong corn & soybean exports sales support the fundamentals and cheap money is increasing speculative activities. Cooler weather is also supporting the rally in corn, soybean, and canola, while World Weather’s long-term forecast of minimal moisture for U.S. winter wheat growing regions is helping the wheat market.  In a similar vein, continued dry conditions in northern wheat-growing regions of Argentina is likely to produce yields that are about 50% of their averages, according to the Buenos Aires Grain Exchange. 
Given the positive feedback I received, we’ll be doing another private grain markets conversation for our Top 10 most active Combyne users in September. The informal conversation allowed producers ask very direct questions, like “what % should I be sold now” and “what’s the impact on grain markets of the U.S. election, depending which way it goes?”. I’m not always answering these questions in the Breakfast Brief and so how you can ensure your seat in the virtual room is by doing these 4 things consistently on the Combyne Marketplace platform:
- Post Listings on the Combyne Marketplace
- Start chats on other Listings
- Hit the Connect button to add existing Combyne users to your trading network
- Invite your trading partners not yet on Combyne to join you and see your deals there.
In fact, given the swings right now in the market, many buyers are hedged differently and so Listing your next deal on Combyne for any futures-related crop is surely to get some attention. My recommendation, however, is to not be the one asking for $12 CAD/bushel canola unless its for movement in March 2021 because we’re not there in the cash markets for spot/immediate movement (although we are there on the futures board)! If you’re not familiar with how to post a Combyne Listing, we’ve started a new step-by-step tutorial series where I’ll show you how to do it!
Federal Reserve Says Free Money is Here to Stay
On Wednesday, the U.S. Federal Reserve shared their intentions to keep interest rates near 0% for at least 3 more years AKA until 2023!  This means that companies can borrow money at practically no cost from the government, then, on margin, leverage it significantly in their trading activities. Put another way, the current monetary policy of the U.S. Federal Reserve is only going to augment the divide between haves and have nots, which will likely create further civil unrest.
My friend, college classmate, and former colleague, Darius Dale, is a self-made man and knows first-hand the negative impact of poor policy: he grew up in some tough conditions in Seattle before making it to Yale University, playing football, and then to Wall Street where he’s had a lot of success. He has said a lot on the matter and he’s absolutely correct: the Federal Reserve’s monetary policy is really only feeding Wall Street and largely disregarding Main Street.  He shared the chart above on Twitter and it speaks to this reality of who’s really benefiting from all this free money over the long term.
That said, U.S. farmers are getting another injection of capital as President Trump announced yesterday in Wisconsin that a new round of $13B of aid will be doled out.  This follows the $19B of cheques that were cut in April, and the other $28B distributed to U.S. farmers in 2018 and 2019 due to the trade war with China. The result is that U.S. net farm income in 2020 will be the highest since 2013 (which is also the last time we saw corn prices at $8 USD/bushel!) but that government assistance will also account for about 36% of this figure, the highest in almost 20 years.
Soybean Exports Demand Extend Rally
Former Goldman Sachs CEO Lloyd Blankfein says that, from an inflation point of view, commodities are a great place to invest today, given their underperformance relative to stocks and bonds.  Thanks to him and a few other market commentators, we’re seeing more speculators pile into grain futures, which is supporting higher levels. But that’s also a contrarian indicator for me, being somewhat analogous to the famous 1929 stock market crash story from Joe Kennedy – JFK’s father – who sold all of his positions when a shoe-shine boy started giving him investment advice. 
The takeaway here is that there retail investors are helping push up values in the stock market and some of that is starting to spill over into commodities. This presents some downside risk, something that I’m extremely cognizant of, given the time of year (it’s harvest!) that corn, soybean, and canola prices are making fresh multi-year highs! Specifically, for canola, I made this comment to Shaun Haney of RealAgriculture in a recent conversation that “the downside risk is very real.”  Further, this week’s Statistics Canada updated production report historically underestimates the size of the Canadian canola harvest.
For our corn and soybean readers, Shaun and I had a healthy conversation about demand fundamentals for these two rotation staples, but I continue to be more bullish on oilseeds over the long term than I am for corn.  However, again I have to repeat that at these current levels, the market is telling us to sell some corn, soybeans, and canola – here’s your reminder that you’ll never go broke selling at a profit!
The multi-billion dollar question though is how much of this current rally is driven by fundamentals versus speculators? Remember that there is a lot of ultra-cheap money to access from the Federal Reserve and all that additional capital has to be allocated somewhere! In fact, Allendale reports that so far this week, hedge funds have been getting longer on corn and soybean to the tune of buying tens of thousands of futures contracts. 
That said, if China maintains their pace of buying of U.S. corn and soybean exports, then sure, this rally has legs to continue, especially since it’ll be supported by the speculators. However, I’m cognizant of how quickly China could start buying more Brazilian soybean exports in the late fall/early winter. Put in simpler terms, the seasonal increase we usually see in Nov/Dec/Jan may not be as strong as China slows it’s buying U.S. soybean exports and instead opts for boats of Brazilian soybean exports.
On that note, yesterday, November soybean prices climbed 17 cents to close a hair under $10.30, thanks to some big soybean exports sales in the weekly report from the USDA.  In terms of actual shipments, just 2 weeks into the 2020/21 campaign, U.S. soybean exports so far are double what they were a year ago, with 2.26 MMT already sailed (or a little more than 83M bushels if converting metric tonnes into bushels), but this largely because of some big boatloads moved last week.
Current Rally Buying 2021 Acres
Also worth considering is that, in the short term, as farmers make more sales, this will put pressure on the technical trading activity. Thinking out through the next 6 months though, supporting the thesis to make a sale of 10% or 15% of production now is the idea that U.S. farmers are likely going to plant more soybeans next year, while Canadian farmers will plant more canola. Let’s be honest with ourselves: if canola and soybean prices are able to maintain their current strength (or anything close to it), it’s only going to be buying more acres for Plant 2021 and a recent Farm Futures survey backs this up!
Their August poll of farmers suggests that U.S. soybean acres will increase by nearly 5% next year to 87.9M acres, which would the 3rd-largest area for the oilseed ever.  Comparably, U.S. corn acres would stay fairly similar with an estimate of 91.8M acres for next year, compared to the 92M acres of corn planted this year.
Final asterisk to consider: the poll was completed before the derecho storm and the impact of a dry August started to show up in many parts of the Midwest. In fact, through yesterday’s updated numbers from the Drought Monitor report, nearly 2/3s of the U.S are facing some sort of drought, including 25% considered to in a state of severe to exceptional drought. 
Have a great weekend!
At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3163 CAD, $1 CAD = $0.7597 USD)
Dec Corn: +1.5¢ (+0.4%) to $3.768 USD or $4.959 CAD
Nov Soybeans: +9¢ (+0.9%) to $10.375 USD or $13.657 CAD
Oct Soybean Meal (per short ton): +$2.20 (+0.65%) to $332.60 USD or $437.80 CAD
Oct Soybean Oil (cents per lbs): +0.30¢ (+0.85%) to 35.21¢ USD or 46.35¢ CAD
Dec Oats: +6.8¢ (+2.45%) to $2.795 USD or $3.679 CAD
Dec Wheat (Chicago): +4¢ (+0.7%) to $5.603 USD or $7.375 CAD
Dec Wheat (Kansas City): +5¢ (+1.05%) to $4.925 USD or $6.483 CAD
Dec Wheat (Minneapolis): +2.8¢ (+0.5%) to $5.443 USD or $7.164 CAD
Nov Canola: +2.9¢ (+0.25%) at $12.093/bu / $533.20/MT CAD or $9.187/bu / $405.07/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.