The dictionary tells us that a truism is a statement that is obviously true. I think that the language of commodities is full of what we think are truisms. I want to pick a fight with a few of these “obvious” truths.
The market always rallies in spring: A few months back I had a discussion with a grain producer. Our discussion ended with the most important question: When is the right time to price grain? In a matter-of-fact tone, he said, “Everyone knows that market prices always rally in spring.”
Who can blame him for the thought? Last year, Dec’16 corn futures rose 75 cents from early April to mid-June. In 2015, November soybean futures climbed $1.25 from early June to mid-July. The rally came earlier in 2014, with corn and soybean prices rising from late winter to early May. The recent history is consistent, and this truism supports the producer who insists on waiting a little longer to price old and new crop grain.
Well, I am also a big fan of spring rallies. In a past column, I have written about the “too-too” season (CSD February 2009) – aka the spring planting season – when progress is too early or too late, soils are too wet or too dry, or weather is too warm or too cold. Concerns of this type can start a spirited rally in an otherwise dull market.
But… “always?” Check out 2010-2013 – four consecutive years when spring sales were too early or too late. There is no “always” in commodities - nothing is 100%. I like to think a rally will happen this spring, but don’t let that stop you from looking hard - right now - at some old and new crop sales, particularly of soybeans.
Corn is King: Who can argue with this nugget of truth? In my commodity marketing class, we study and discuss all ag commodities, but we start with corn because corn is king. Corn, as the leading feed grain and as an important source of energy and sweeteners, has impacts that are broad, affecting other grains, oilseeds, livestock and dairy. To paraphrase an old saying that once applied to the auto industry, “When corn gets a cold, all ag commodities gets pneumonia.”
Yes, corn is king but my mind is on… wheat. World wheat stocks have been building and wheat prices trending lower for four years. The Corn Belt continues to spread west and north as soybeans and corn gobble up acres that traditionally went to small grains. Winter wheat acres are at their lowest level since USDA began reporting estimates in 1909. If spring wheat acres are unchanged from a year ago - that’s an awfully big “if” - total acres planted to wheat in the U.S. will sink below 47 million acres, the lowest estimate in 98 years of recorded history.
Wheat may be waning in importance as a crop in the U.S., but we remain a major exporter in the world market. Wheat producers are very good at what they do (2016 yields were 12% higher than the previous record!) but they will not set yield records every year. Corn may be the king, but don’t be surprised if the next market rally is led by wheat.