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Grain markets hinge on China demand

Grain markets hinge on China demand

Corn soy transport quad graphic

The trade started the week waiting to see the June 30 crop report from the USDA, but in many ways it had already moved on.

“The trade is looking more at next year than this year,” says Karl Setzer of Agrivisor.

In a way, two different things are pushing the market, Setzer says. The supply and demand numbers indicate a very tight supply. Setzer says 620 million bushels of corn have already been sold for next year, 332% of what sold last year at this time.

The problem is that a very big chunk of the demand in the market comes from China, and that makes traders a bit nervous. There are some concerns that China could cancel some sales or not take delivery. If that were to happen it would change the dynamic.

Of course, that might not happen. The demand could remain strong and the supply tight. But traders are not completely convinced.

Another complicating factor is the possibility of inflation. As the economy comes out of the COVID-19 pandemic, people are driving more and building more homes. Lumber and gasoline have gone up in price. That is not surprising, but it is a factor in the market, especially as foreign buyers look at the cost of moving grain from the United States.

For farmers, there is another item to consider when making marketing plans. The cost of market tools such as options and puts has risen.

“They are extremely costly right now,” Setzer says.

Because of that and other factors, he says farmers may want to practice some patience in marketing the crop. He says selling old-crop grain makes sense, but moving a large percentage of the new crop may not be the best move at the moment.

Of course, a change in the weather pattern or surprise news from the USDA or from China could change all of that, but for now, he says, patience may be a virtue.

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Gene Lucht is public affairs editor for Iowa Farmer Today, Missouri Farmer Today and Illinois Farmer Today.

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