The new year started with a hot market and strong grain prices, something that has not generally been the case for a while.
“The funds are buying,” says Karl Setzer, an analyst with Agrivisor. “The same things that gave the market support to end 2020 are still around at the start of 2021.”
With soybeans opening the year in the $13.25 range and corn not that far below the $5 range, farmers are feeling good, Setzer says. Most of the corn and soybeans from the 2020 crop has already moved off the farm and been sold, he adds. Estimates put those figures at about 90% sold for soybeans and over 70% sold for corn.
For many farmers the attention now turns to whether or not to market some of the 2021 or even the 2022 crop while prices are high.
Those aren’t necessarily bad ideas, he says, although some farmers may want to use market tools to protect themselves against the upside if they are going to market that far in advance.
There are multiple reasons for the present rally and the opportunity to market future crops. One is that crop production suffered in many parts of the world in 2020, thanks in part to weather issues. Another is that demand has remained relatively strong. That demand market has been fueled in large part by China, which is rebuilding its pork industry and which had crop production issues. The signing of the Phase One trade agreement also helped in that it called a temporary truce in the trade war that had hurt prices the previous two years.
China is living up to its Phase One commitments thus far, Setzer says. But traders are anxiously watching to see if purchases lead to shipments. So far the purchase figures are large, but the shipment numbers are lagging a bit.
Setzer says the timing of the rally is also helpful because farmers have depended heavily on government payments the past several years. The last estimate available said that 40% of farm income last year came from government payments.