The price rally for grain maize and soybeans is over, more and more American stock market analysts believe. Since August last year, both commodities – together with wheat, by the way – have been experiencing a significant price increase. Now that the market is entering its final phase, the same applies to the bull market.
The bull and the bear (bears and bulls) are metaphors in the international grain market for price movements that move up (bull) or down (bear). Why these animals? This has to do with the way they attack: a bull throws its victim up and a bear knocks it down. News in the commodity markets is therefore always referred to as bearish or bullish.
bull run
There are many more market terms that have to do with the 2 animals. Since August 2020, the corn and soy markets on the CBoT have started their bull run. A period of rising prices. The price level has more than doubled since that start date. Wheat has also literally benefited from this revival.
A bull market has 2 major drivers: demand for product and fear. The latter can be caused by all kinds of things. Often the weather, but also other world-shattering events. In this case it was the corona pandemic and the subsequent hoarding behavior of countries. The demand for the product arose when China started purchasing huge amounts of raw materials worldwide so that their pigs could be fed. This strong demand also means that higher prices are paid in the physical market.
Drought in Brazil
What has further helped the corn market is the disappointing Brazilian corn harvest. Grain maize is sown immediately after soy at the start of the year. Sometimes when the combines were still driving in the field. Last harvest season started late for soy due to persistent rainfall, which also caused a lot of corn to go into the ground late. This was followed by a period of persistent drought. The drought has now become the largest in 91 years. The impact on crop growth is enormous, but livestock farming and energy production have also been affected.
The above factors (and many more) have caused soy and corn prices to rise to their highest levels since 2012. The big question now is when will the tide turn. That moment is getting closer and according to many analysts, the top is in sight or has already been reached.
Premium decreases
As the season progresses, the bridging period until the new harvest becomes smaller. For corn and soy this is September/October. With sky-high price levels, traders are increasingly choosing to wait and rely on previously purchased stocks. This is also visible on the futures market, where the price difference between delivery now and that in August or for the new harvest in October is increasing. A dangerous situation, say the analysts, which means it is better to do business now.
The current period is an exciting one. American farmers who sold their products too early last season are determined to make a profit next season. Analysts therefore emphasize to guard against this rashness. Look at the market realistically. The chance that Brazil will experience another weather catastrophe is statistically small, but cannot be said with certainty.
Back on track
Ultimately, the weather partly determines the international races. The start in the US has been relatively good, although the coming weeks are unclear. Markets have fallen in anticipation of rain and favorable growing weather, but the first new reports point to drier weather. The European continent was under the spell of persistent cold for a long time, but that is over. Favorable conditions in the Black Sea region mean falling prices closer to home.
What does all this mean for a Dutch arable farmer, dairy or pig farmer? The corn market largely provided the wheat price with a solid foundation last season. This became visible when China started purchasing more and more wheat, because corn became too expensive or simply no longer available. Soy also benefits from a very good market for vegetable oils. In the Netherlands, both commodities have led to much higher feed prices.
Situation in Europe
For arable farmers, wheat mainly plays a role. That is the turn of the ever-dominant Russia. Next season we will have to deal with the unpredictable variable export tax for the first time. It was initially thought that this would leave a significant mark on the market, but so far this has not been noticeable. The current volume of wheat for the 2021 harvest is estimated at 79,5 to 80 million tons.
For that to become a reality, it still needs to rain enough for the summer grains. Last week, the Russian Agriculture Ministry even significantly increased its export expectations and announced a first tax rate for the 2021 harvest. This was favorable to exports in June. Global demand is sufficient, combined with small supplies, to keep the wheat market afloat. But given the current circumstances, there is no longer a significant new 'bull run'.