Grains Can Move Higher

(Inside Futures) – When talking to grain producers the majority feel corn, wheat and soybeans will trade lower from current levels. It appears from several reports on the internet that a good many analysts feel the same way. Many think grains trading off their lows in October are setting up an outlook for a severe downturn in November.

Time will tell if they are right, but for now I see higher prices. I do not see a bull market, but a higher market than current prices. Even if soybeans fill gaps above $11.00, with a wide cash basis, farmers still won’t get big returns. There is a reason used farm equipment sales are offering record numbers at online sales.

However, there are two sides to fundamentals and at current prices grains and soybeans are cheap, especially if you take into consideration what farmers are receiving for cash prices and you take into consideration where grains can be hedged on the buy side for feed and/or purchased for cash needs.

With hog and cattle prices dropping, buying feed needs at cash prices available in the U.S. is as important as hedging livestock.

Brazil and Argentina are planting at this time and under normal growing conditions, they will add to global ending stocks. However, it is no secret that Brazil oversold last year and with increases of cattle into feedlots, an annual expected increase of hog production growth around 2.4 percent a year and an expanding corn ethanol industry, they will need to buy feed grains especially in 2017.

Over the past two weeks, soybean exports have been spectacular. For 2016/2017 China bought 2,514,100 MT and for 2017/2018 China did 2,087,700 MT. For 2017 in order to get farmers in China to grow soybeans they are paying big incentives. China’s population of nearly 1.49 billion people will demand soybeans for years into the future. It is no secret their hog production is growing as well as their poultry and aquaculture industries. With U.S. soybean futures near $10/bushel, buying is a matter of how much they can logistically take at one time. It may be recalled last year China was one of the main buyers of Brazilian and Argentine soybeans and shipments from both countries moved at record numbers.

Weekly export highlights also show demand for grains and soybeans are strong this year from Central and Latin American countries such as Columbia and Mexico. Both have trade agreements with the U.S. and they need to source U.S. products because new purchases from Brazil and Argentina are not readily available.

With carrying charges in corn and soybeans, buyers in the U.S. are trying to smooth out harvest deliveries into 2017. At the same time the futures are in a carrying charge, most buyers are offering much narrower basis for cash deliveries into 2017.