Santa has been very generous over the past few years. Last year I looked under the tree and found $13 soybeans and $4 corn; not quite as big as the gifts in 2012 (or 2011, or 2010), but they fit well and I was grateful. I’ve tried to be good, but rumor has it that Santa will not be as generous this year. Here is my corn and soybean marketing wish list for 2015.
One more October-like rally: Just when we thought the game was over, corn and soybean prices bounced back strong. From the first to the last day of October, cash grain prices rose 15% - corn prices increased by 50 cents per bushel, and soybean prices added another $1.30 per bushel. All this as harvest was just starting! This is what happens when the pipeline is empty, harvest is late and demand is running strong.
We needed that October rally. We needed to prove that a market rally was possible. After four months of expanding yield prospects and persistently lower prices, you start to wonder if a rally could happen.
As strong and welcomed as the October rally was, we need another one to propel values into the “I might sell some at that price” category. This might prove to be a big ask for Santa. Harvest was late, but the crop is finally out of the field and the bushels are there. Stocks are replenished and I suspect that rallies in the first half of the year will be met with selling pressure.
Logistics: The railroads, particularly in the Northern Plains, did not have a very good year for delivering reliable service in 2014. Does $10 soybean futures not work? Try living with a basis that is 150 cents below futures. Santa needs to bring better service.
Continued strong demand: After a year like this, it is hard to wrap your mind around anything other than the tale of woe sold by grain bears. Despite their growls, allow me to state an optimistic view; $4.50 corn and $11.00 soybeans are possibilities by next Christmas. What is the source of my optimism? Strong demand. The livestock sector is profitable and trying - oh so slowly trying - to expand. China’s appetite for soybeans has not slowed. Corn exports are tracking back towards pre-drought levels. Even ethanol production is holding up, despite difficult conditions in the oil and gas markets.
The low price environment we face today was not caused by poor demand. It was caused by outstanding growing conditions that led to record yields – conditions that rivaled some of the best years experienced in the Corn Belt over the past 40 years. What are the chances that we experience another year of outstanding growing conditions in 2015?
Santa, bring me strong demand. Strong demand provides the base for a price recovery. But it may take well into the next growing season before we see the market turn.