After over two years of writing a weekly column for Barchart, this week will be my last. I will likely return to this space once a month or so, especially if something happens that I feel the need to discuss. 

It’s a bit of a trip to look back through my writings and the roller coaster ride grain prices were on for much of that time. It’s funny to look back and see that my first column highlighted how bearish I was on corn in October of 2022, especially considering I was one of the first to publicly list why I was bullish corn here in September of this past year.   

Writing this column has been extremely rewarding. It has helped me to connect with cash traders and merchandisers from around the world, those who look at the same things I do when it comes to forming an opinion on market direction and then trading accordingly. These connections have helped me to better understand the changes that have taken place when it comes to grain movement around the world. They have also helped to reinforce what I already knew from my days of merchandising, that there is far more to price discovery than a supply and demand projection provided by the USDA. 

There are so many times now where I feel the inordinate amount of time analysts spend focusing on regurgitating USDA data does nothing but a disservice to their readership. In my many conversations with the folks responsible for putting together those supply and demand updates, it has become clear that the USDA is limited in their ability to be forward-looking. The only time they are truly forecasting an outlook is during the growing season, after that they rely heavily upon cash developments and actual trade to fine tune the outlooks they had created earlier in the year. 

For me, when it comes to analysis, market direction boils down to one simple question, is it getting easier or harder for the world end user to source bushels? 

This week, in honor of my last weekly column, I wanted to again go over the things I pay attention to in the cash market, how they influence my opinion on price direction, and what I’m watching now that I feel could catch the market off guard in the weeks and months ahead. 

Cash Grain Rules

The cash grain pipeline is a living, breathing creature, one that is both beautiful and dangerous. 

One of the biggest misconceptions when it comes to cash grain movement in my opinion, is that price is the only driver in a trade. While price obviously plays an important role, there are a whole host of other factors to take into consideration. Ease of movement, or accessibility is huge; buyers buy with the intent of receiving bushels in the timeframe stated in the contract. In addition, quality plays a role, with a handful of different factors to take into consideration depending on the intended use of the product purchased. 

For me, while it is important to get a general lay of the land from the USDA—are crop estimates getting bigger or smaller, how does this look to impact trade as we move ahead—I much prefer to watch what is happening around the world when it comes to basis and cash spreads to get a better answer to that question I asked earlier, is it getting easier or harder to source supply?

Failure Points

In addition to watching developments in cash grain, I ask myself, where could the market consensus be wrong? I don’t do this to be contrary, I do it because I learned the hard way in 2020 what can happen if you become complacent and stop looking at what is priced in versus what isn’t. 

To paraphrase a quote from Mark Twain, it isn’t what we don’t know for sure that gets us in trouble, it’s what we know for sure that just isn’t so.

While obviously you cannot ignore market consensus and its influence on price, how much of a fundamental factor is priced in or whether it unfolds as expected is just as important. I can think of several times throughout my career and especially over the last two years, when something that was considered a lock by the market at one point, ended very differently than initially expected. 

When looking for failure points, I focus on the human factors we will always struggle to predict, emotion and sentiment. 

What I’m Watching Now

Speaking of failure points, when it comes to price, I feel like we may have a handful of ideas currently baked into market that may not necessarily transpire the way traders are expecting. 

South American Bean Movement

First and foremost, the large Brazilian bean crop limiting US bean exports in the short term. The shift in production potential out of Brazil was relatively abrupt, moving from “it could be 180 mmt easily,” to more than likely landing within a couple million metric tons of the USDA’s current estimate. This combined with a cut to Argentina and Paraguay’s outlook, as well as the loss of 95 million bushels of US old crop supply has taken a significant number of hypothetical bushels out of the supply picture over the last month.

While Brazil is expected to have an additional 16 mmt or 588 million bushels of supply compared to a year ago, concerns are starting to grow over harvest delays and quality issues. The rate of demand growth in the region is unprecedented as well, with crush volumes in both Brazil and Argentina expected to grow. 

In addition to domestic demand growth and potential quality issues, we are also looking at some interesting dynamics setting up when it comes to the Brazilian economy. Interest rates are expected to continue their strong rise, with inflation likely proving problematic. In the past, farmers struggling with inflation and a weak currency have resorted to keeping bushels out of the pipeline until cash is needed. Whether we see that happen in Brazil or not could change the entire dynamic of the market.

Either way, it does appear as though the movement of bushels out of Brazil will be much slower than expected for the rest of January and much of February. 

Global Corn Quality and Supply

It feels like we will continue to see reasonably strong global corn demand as we work through major EU quality issues, with limited available supply. Talk in the cash industry currently is that we could see upwards of 10 mmt of additional corn demand out of Europe in order to blend out some of the toxin issues they are currently struggling with. 

Reports of vomitoxin where rainfall was prevalent and aflatoxin where it wasn’t are not surprising, but they are numerous. With Ukraine’s crop much smaller than seen the year prior, and reportedly struggling with quality issues as well, the US is the only supplier of consequence until the South American crop makes its way into the world pipeline, sometime in June. 

The wildcard will remain China, with reports of terrible quality there in the northern part of the country as well. If China decides it must take in extra stocks for blending, things could get interesting, especially if we see further harvest delays in Mato Grosso continue to limit safrinha plantings. 

Trump Trade

The market has priced in a disruptive approach to trade by Trump, however, he is now indicating he is looking to take the least disruptive approach. Ahead of his inauguration it appears President Trump will hold off on rolling out blanket tariffs on day one, instead choosing to research trade policies and how they could possibly be changed, if needed. 

With more talk of the revival of Phase One, one must wonder if China hasn’t been a bit slower in their recent purchase pace intentionally. Xi and Trump reportedly had a very productive conversation last Friday, leaving both saying they are looking forward to working with the other to resolve their differences.

While yes, at face value, Brazilian supplies are cheaper, is it possible China would choose to look at the long-term benefits of working closely with Trump, spending a bit more on agricultural commodities to keep trade open and tariffs limited? I would say based on their current economic position and the fact they had already agreed to Phase One, that answer is yes. 

New Crop Acreage

With the change in production outlined earlier this month by the USDA, the new crop acreage battle isn’t as cut and dry as once assumed. The cut of 95 million bushels of bean production from the 2024 crop year took nearly 2 million acres worth of cushion from the new crop supply and demand outlook. While soybeans looked like they could easily give up 3 million acres or more next year ahead of the January report, beans would now struggle to give up more than 2 million acres, without risking rationing. 

Of course, there is still a lot more wiggle room in the bean supply and demand outlook than in corn, but not to the extent we have been thinking for months now. 

While we are going to see some growers gravitate towards corn in the hopes that they can yield themselves into prosperity easier than in beans, it is not a slam dunk we see a sharp shift. To me, I wouldn’t be surprised to see 93 million acres of corn and 85 million acres of beans in the new crop outlook, with neither of which necessarily providing a burdensome stock outlook. 

What Does It Mean?

In the end, I have no idea what happens next, but I would venture it ends up being very different than what is currently ‘priced in.’ 

As we move ahead, I thank you for joining me each week over these last couple of years. I will still be around of course, looking for failure points and asking whether it is getting easier or harder for the end user to source supplies. You can always check out what it is we are doing in the meantime at consusag.net

As always, don’t hesitate to reach out with any questions. Have a great week!