While the grain markets remain strong and prices remain high, there has been a shift in market attitude.
“We’ve gone from buying the breaks (in the market) to selling the rallies,” says Karl Setzer of Agrivisor. “It definitely shows me that the trade is growing more comfortable with the stocks on hand.”
None of this necessarily means the market is headed for a cliff or even that it is heading down, but a bull market needs continual support and this market appears to be gradually shifting from a full bull market to more of a flat or plateau market.
Traders are getting more comfortable with the present narrow carryover margin.
One factor is that for almost every major agricultural commodity, from corn to soybeans to wheat to hogs to cattle, the U.S. price is the highest or one of the highest in the world. It’s hard to keep those high levels when the market is a world market.
For the near future, that likely means corn prices closer to $6 than $8 and soybean prices closer to $15 instead of $18. Setzer reminds farmers that those levels are still very good and that they can sell for a profit at those levels.
One additional point is that the cost of using market risk management tools has gone up. Items such as options are very expensive right now. For some farmers that could mean it makes more sense to simply use the cash and futures markets instead of buying protection through the use of some of those tools.
And Setzer says it may make sense for farmers to look ahead and market some 2022 grain. If you can lock in some bushels at $5 for corn or $12.40 for soybeans for the fall of 2022 that isn’t a bad thing, he says.
Of course, all of this could change if a full-blown weather market hits this summer. That is always a possibility, but right now the market is still high but somewhat flat.