China is still buying grain and the market is still trending upward.
“The beat goes on,” says Don Roose, president of US Commodities in West Des Moines, Iowa.
But Roose says there is another dynamic in the market that is becoming more and more pronounced. The trade is encouraging farmers to sell now.
There is very little incentive to store this fall’s corn or soybean crops, at least not without some type of risk management.
Right now the spread from December to July corn is only about 7 cents, which is not enough to pay for storage and handling during that time — a signal that the market wants farmers to give up ownership of their grain. The signal is even stronger in the soybean market, where there is inverse of 14 cents between November and July beans. In addition, the basis is very tight right now.
What all of this means is that the crop isn’t exceptional and demand is strong.
Normally, prices would hit a low during harvest, but this year that isn’t the case. Instead, the trade is telling farmers not to put their grain in the bin, or at least not to keep it there long.
One of the reasons for that situation is China is buying large amounts of both corn and beans right now. That may be due to poor crops in China or to the fact that China is trying to quickly rebuild its hog herd, which was decimated by African swine fever.
Of course, the Chinese market always carries question marks. Will the spigot shut off when crops become available from South America? Is China trying to meet Phase I trade deal commitments, and when they are met will they stop? Is there some other dynamic at play?
The good news is that there is demand and farmers have an opportunity to market grain this fall. The market is giving an incentive for farmers to sell, and Roose says if farmers want to retain some form of ownership, there are marketing tools which may be useful.