Oct. 28 – US Presidential Election Nears, Grain Markets Sell-Off Starts

Grain markets are all red, as are all other outside markets, as volatility builds into Tuesday’s US Presidential Election, prompting profit-taking & moves to the sideline.

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US Presidential Election Nears, Grain Markets Sell-Off Starts

Grain markets are all red, as are all other outside markets, as volatility builds into Tuesday’s US Presidential Election, prompting profit-taking & moves to the sideline. And with amplified volatility comes opportunity, but at this point, for grain markets, the opportunity may have passed, at least for the next few weeks at least. At this point, it’s worth noting that managed money is estimated to be holding a net long position that is quite similar to peaks we saw in other growing years right before grain markets started to sell-off. Bottom line is that history tells us that this level of net-long fund ownership is a contrarian indicator.

In a similar vein, as I had suggested in Monday’s FarmLead Breakfast Brief, canola prices have been feeling extremely top-heavy. Since I wrote that 2 days ago, the January 2021 futures contract has dropped nearly $15 CAD/MT, or about 3%. If there’s going to be rebound back up to these previous levels, it’s likely going to be after the US Presidential election.

While one can’t ignore that the US Presidential election happening in a few days, the sell-off in broader equity markets really started in Europe as new COVID-19 restrictions there are creating fresh economic concerns. If those are wondering what an extended lockdown looks like, Melbourne (Australia) has your example, but the economic cost and toll on individual’s mental health was massive. [1]

US Presidential Election Impact on Grain Markets

Wheat futures have pulled back the last few sessions as rain and snow fell on parched land across the U.S. Southern Plains. The rain overcame the relatively bullish dynamic that was the USDA’s winter wheat good-to-excellent rating of 41% G/E, which was well below the trade’s expectation (52%) and the worst start for the crop since 2013. Cue the reminder, however, that the winter wheat crop isn’t made in the fall!

Also in the USDA’s crop progress report on Monday was the U.S. corn harvest sitting at 72% (five-year average is 56%), whereas the soybean harvest is 83% complete (73% five-year average). [2] The strong pace of Harvest 2020 weighed on values, as has some farmer selling, but many analysts agree that the long-term price trends still suggest upside potential, especially when we continue to see strong international demand. Further, Allendale Brokers notes that the next line of resistance for December corn is more than 20 cents away at just below $3.87 but, for January soybeans, it’s $10.615 (which we cruised through this morning as I was writing this!). [3]

This in mind, over the next 6 days, there will be a lot of money moving around as traders position themselves ahead of the US Presidential election. As a result, volatility is going to increase significantly over the next 4 trading sessions. However, given the emotions building, regardless of what happens in Tuesday’s US Presidential election, there seems to already be a palatable air of distrust with the outcome and from BOTH sides of the aisle. If we are to see marches and/or any rioting after the US Presidential election results, how will this affect markets?

Historically speaking, the U.S. stock market tends to ignore any social unrest issues and prefer to focus on forward-looking earnings and economic potential of companies and the country, respectively. [4] Add in the perceived second wave of COVID-19, no new economic stimulus package from Congress, and this U.S. Presidential election, and there is definitely some downside risk, and that’s why you’re probably seeing people exit positions to get out of the way of the volatility train that’s starting its engines.

Ultimately, I think that supply and demand fundamentals will have a much greater impact on grain markets than who gets elected in the US Presidential election in 6 days. That said, Robert Cahaly & his Trafalgar Group, who were one of the few to correctly predict Trump’s election in 2016, is currently suggesting he’ll win again in 2020. [5]

Going into the US Presidential election, Trafalgar Group suggests Trump will be re-elected

Brazil’s Soybeans, Corn Prices Get More Attention

With rains finally starting to fall in Brazil, the soybean planting campaign has hit full stride, with 23% of the crop now planted through this past weekend, according to AgRural. [6] While that’s still behind the 32% pace at this time a year ago and the 34% five-year average, the 2 largest soybean-producing states, Mato Grosso and Parana, planted one-quarter and one-third of their crop last week, respectively! While more rain is certainly needed, the late start has created some concerns about disease susceptibility and the need for good pod-filling weather in December and January.

In the meantime, Brazil is importing soybeans from the U.S. to keep their crushers going, thus creating some opposing forces for U.S. soybean prices: On one hand, the surprise demand from Brazil is welcome but the timely rains there are going to help a crop that will compete with U.S. soybeans. Let me be clear though that there’s not millions of tonnes of U.S. soybeans headed to Brazil, although Bloomberg is reporting that almost all major agricultural trading firms are “looking into how they can make the transaction work.” [7]

Meanwhile, there’s also some eyes on what Brazil’s corn crop could produce this year, as domestic prices continue to top new records. This week, Brazilian agricultural analytics firm Cepea notes that average cash corn prices in the country have gained nearly 30% in the last month alone! At nearly $7 USD/bushel, this would be competitive with U.S. corn landing at Brazil ports! [8] That said, corn prices in China are also sitting at record levels, an indication of how both supply and demand factors driving the current rally in corn prices.

Another dynamic to consider in this corn market is the smaller harvest out of Europe, as the summer drought has negatively impacted yields from Romania to France. [9] Further, this week, APK-Inform also lowered its estimate of the Ukrainian corn harvest to 33.8 MMT, which follows the Ukrainian Ag Ministry’s own downgrade to 33 MMT and one trade union’s 30 MMT estimate. As a result, in the last few days, domestic corn prices in the Ukraine have reportedly jumped up as much as $25 USD/MT (or about 65¢ USD/bushel if converting metric tonnes to bushels)! [10]

Considering that Ukraine is the 4th-largest corn exporter in the world, with over 80% of their harvest usually shipped out of country, the continued downgrade of the crop is another positive factor for corn prices to remain elevated (at least compared to where we were just a few months ago on the futures board. Ultimately, with corn prices falling about 15¢ USD/bushel on the futures board after a $1.10 rally in about 2.5 months, today’s prices should still be considered attractive (and that 15¢ might just be the speculators leaving anyways!)

Corn prices are pulling back ahead of the US Presidential election

To growth,

Brennan Turner
CEO | FarmLead
TF: 1-855-332-7653

At 8:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.327 CAD, $1 CAD = $0.7536 USD)

Dec Corn: -10.5¢ (-2.5%) to $4.055 USD or $5.381 CAD
Jan Soybeans: -19.5¢ (-1.8%) to $10.57 USD or $14.026 CAD
Dec Soybean Meal (per short ton): -$11.9 (-3.1%) to $372.10 USD or $493.76 CAD
Dec Soybean Oil (cents per lbs): -0.74¢ (-2.15%) to 33.37¢ USD or 44.28¢ CAD
Dec Oats: -9.8¢ (-3.15%) to $2.983 USD or $3.958 CAD
Dec Wheat (Chicago): -12.5¢ (-2.05%) to $6.033 USD or $8.005 CAD
Dec Wheat (Kansas City): -16¢ (-2.9%) to $5.333 USD or $7.076 CAD
Dec Wheat (Minneapolis): -9.8¢ (-1.75%) to $5.518 USD or $7.322 CAD
Jan Canola: -24.3¢ (-1.95%) to $12.095/bu / $533.30/MT CAD or $9.115/bu / $401.90/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.

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