Being Bullish on Bullishness

January weather has been benign. Mid-January is good for me as it always represents another trip around the sun. Its kind of spooky, a January without snow or freezing temperatures, but that’s what I got. I had a non-farmer exclaim to me the other day about farmers preferring a hard winter. I said, yes, there is something to be said for that, as our cold Canadian winters often have the effect of reducing pests and redeeming soil structure. Needless to say, might still happen, knock on wood. January represents many things, but frigid temperatures is usually one of them.

We all know what the other mid-January big deal is. Aside from the cold, we’re always anticipating the January USDA report, the data dump which is the Stanley Cup Finals, Super Bowl, Grey Cup and Vanier Cup put together. Despite the grain economy changing over time, often times the January USDA report can be explosive. This was one of those year.

On January 12th, USDA through a bomb into the grain market. The USDA lowered US domestic yield by 3.8 bushels per acre to 172 bushels per acre, dropping production down to 14.182 billion bushels. USDA also lowered old crop carryover by 76 million bushels, and this combined with lower yields dropped the 2020/21 corn crop by 400 million bushels. It all happened by the stroke of a pen. Corn usage was actually cut back a bit, but corn skyrocketed on the move limit up. Soybeans followed partially because they seem to go only in one direction.

Well, not really, but you get the picture. Everyone was focused on soybeans ending stocks which came in at 140 million bushels. This was a 35-million-bushel decline from the December estimate. USDA also reduced the yield a half bushel an acre to 50.2 bushels per acre. USDA also raised crush and soybean exports. USDA kept Brazil’s production at 133 MMT and Argentina beans at 48 MMT. Soybeans took off with corn, although I consider corn the bigger surprise.

Wheat production in the US remained the same as the December report, but usage was increased and ending stocks dropped below expectations. As I’ve said before, you’ve got to look at supply and demand balance sheets within the specific wheat classes. In Ontario, we grow mostly soft red winter wheat. Last week that could be contract here for over $7.50 a bushel. If the price of corn catches more fire, you can expect more wheat to get into feed rations.

So here we are. I’m presented on Zoom to Eastern Ontario farmers earlier in January. That day, nearby corn futures are sitting at $5.37 and soybeans at $14.30. About 10 months ago, we were at $3.68 for corn and $8.92 for soybeans. If you saw this coming 10 months ago, you are better than me. Yes, it’s been a weird year, but it seems now a days, the attitude is being bullish on bullishness.

How did we get here? Well, it’s a long story, but it has quite a few facets. One analyst said recently on Twitter that last spring we planted into “peak fear.” At the time, Covid was like a monster. Needless to say, in retrospect, that monster crushed our optimism, and it may have shown up in the field. USDA just got done telling us the crop wasn’t what we thought it was. At the same time, this realization came mostly in the last month. Over time demand increased from China and elsewhere. The US dollar kept falling. South American weather got dry with strikes in Argentina. Incrementally prices just kept increasing shattering mostly everybody’s paradigm. The lesson to be learned is grain prices are not always range bound. Remember the discussion earlier last year if corn futures would break through $4.25 or even $4.50? It seems so yesterday.

Was it, is it a perfect storm for grain prices? Well, as of now, grain futures are still headed skyward, but breaks in the cash market will likely come. Arbitrage can be a funny thing. Yes, but how about if the Brazilian crop gets smaller, followed by a rough 2021 growing season? How about if the North American growing season is the same as 2020? You know the drill, in these Covid times, we yearn for normalcy and it’s the same in the grain market. At a certain point, we’ll get back to normal where there is more predictability, like pricing grain in June. Needless to say, new crop pricing now is the stuff dreams were made of 8 months ago.

A trader on the floor of the CME once told me, to sustain a bull market, you have to feed the bull every day. That is so true. Who knew, the 2020/21 bull liked to be spoon fed. You’d think eventually he’ll get full. But for now, being bullish on bullishness is a thing.