TFM Perspective 11-6-2020


Bull or Bear

Since the spring of 2019, the grain markets have been in significant flux. A lot of price movement hasn’t seemed to make sense, yet here we are today in a market that has potential to explode or lose recent gains. Let’s revisit spring 2019: Corn and soybean futures cratered into the planting season, even though planting progress was well behind schedule and temperatures well below normal. Declining prices seemed odd at the time. In hindsight, managed money was selling futures, assuming farmers would plant aggressively when an opportunity arose and, therefore, weather premium wasn’t there. Managed money was also likely selling the fact that trade deals were far from being accomplished, and significant trade uncertainty left the market vulnerable to price weakness. It didn’t take long, however, for prices to quickly turn around, reaching new contract highs in a month. Volatility awoke from slumbering grain markets, which were mostly trading range-bound, with good crops produced year-in and year-out. Fast forward to today, and the spring of 2019 was just the tip of the iceberg of what may be termed a new window of uncertainty and a big uptick in price volatility. As we look ahead to the next 12 months, we ask ourselves if the market is forming a bullish mindset, or bears are just waiting for the right opportunity to pounce and smother prices.

After the spring of 2019, prices rallied in the early summer and then quickly retreated, as weather conditions improved and corn and soybean crops looked as though they might be something close to normal, or even better. Trade deals were still not in place, and a significant drawdown to the Chinese hog herd (due to African swine fever) dimmed prospects of strong world demand. Prices slid, posting lows in early fall, and then recovered some into the October time window, as yield and quality concerns confirmed what many believed in spring when crops were planted so late. Who would have thought the high for corn prices for the next year would occur during the heart of harvest? Yet, that was the case for the next 12 months until December 2020 corn futures finally breached the October 2019 high price. In winter of 2020, COVID-19 crept into the marketplace and was followed with an energy price war between Russia and Saudi Arabia, which had oil prices trading into negative territory. Ethanol demand was ravaged, a trade deal with China was penned and hopes for strong exports to rescue failing prices gave farmers some optimism. Yet, big crops in South America filled the Chinese pipeline until late summer. August arrives and everything changes. A freak windstorm in Iowa and increasing dry weather conditions in the Corn Belt and suddenly expectations for record yields diminished. China, having maximized the South American supply, aggressively purchased US crops. Fund money came pouring into row crops and in a matter of several weeks prices moved from contract lows to contact high.

Prices are now at a pivotal point. A less-than-ideal start to the South American growing season with dry weather a factor for both Brazil and Argentina, along with dry weather affecting the potential wheat crop in Russia (the world’s largest exporter) has prices on a volatile path. Expectations for increased South American supplies are still alive and well. A focus on weather conditions moving forward will likely be watched more closely than ever. Inverted markets (market paying you more now than later for your crops) and strong basis is telling farmers to sell. It is also suggesting potential rationing of supply and chance for much higher prices. Both bulls and bears will argue the merits of future price moves.

What should you do? Be strategic. If selling, retain ownership with fixed risk option strategies. If you prefer futures, use stop orders to manage risk. If storing, use puts to establish a price floor. Doing nothing is still a choice, and it is risky. This could pay big dividends or be problematic if bears win the upcoming price battle. Consult with those that can execute for you. Seek advice of professionals who can align your needs and goals with the tools available.

If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-top-farm, extension 444.


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.


Bryan Doherty

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