TOP FARMER WEEKLY PERSPECTIVE 12/16/2022 BY BRYAN DOHERTY

Export Struggles and a Bigger Picture Perspective

Despite the U.S. dollar dropping near 10% since September, U.S. exports have remained precariously slow. History has indicated that high prices often encourage end users to take a more cautious approach to buying and, therefore, only purchase on an as-needed basis. Since prices have been high since last spring (except for a drop-off in summer and subsequent rally), robust export sales into the fall months have been lacking. The USDA has reduced corn exports monthly since September. The question is whether or not exports are on the verge of improving, or if the trend of slow sales will continue.

From the perspective of the buyer, corn prices have dropped near $0.50 on futures since the beginning of November. Add to that approximately a 10% decline in the dollar and, in theory, exports are becoming more attractive. However, problems with the Mississippi (due to low water levels and high barge costs) have kept Gulf prices stronger than U.S. competitors. Recent changes in weather patterns have produced more moisture along the Mississippi channel, so this problem could likely be less than it has been. Still, end users have failed to respond in an aggressive fashion. The real focus, however, is prospects for South American production. Argentina, the world’s #2 exporter of corn, has struggled with early-season dry conditions, as has southern Brazil, which could affect first-crop production. Yet, Brazil’s emergence on the export market and their second corn crop after beans are harvested is where critical yield analysis will occur. China has inked a deal to purchase Brazil corn. If Brazil’s production appears to be in jeopardy, they may aggressively seek U.S. corn. At present, forecasters are suggesting a waning La Nina pattern will lead to more normal-type weather in both Argentina and Brazil. Consequently, it appears the bet is on big production. This theory may be reflected in the weekly Commitment of Traders report, in which managed money was long near 270,000 contracts at the end of October and now may be close to 140,000. Soybeans and wheat are a similar story, where U.S. prices, according to the International Grain Council, have generally remained higher than competing countries.

The world remains in an uncertain environment coming out of COVID, while a war rages on in Ukraine. If weather conditions do turn more normal in the year ahead, the world will likely grow its food supplies. In this scenario, end users probably remain as buyers on an as-needed basis and price trends will continue to ease lower. This suggests U.S. farmers should continue to make prudent cash sales of both old and new crops. The old saying is that bull markets have long tails, referring to a declining price pattern. Yet, if weather is less than ideal and the war continues into next year, expect a more volatile environment.

When marketing, an idea is to expect world weather conditions to improve in the year ahead and prices to work lower. Forward selling, hedging, and using puts are strategies to consider. However, cover sales with call options so that you have a balanced approach and are prepared for whichever way the market moves. Be sure to understand the risks and rewards before entering into any strategy.

If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

Author

Bryan Doherty