March 29, 2024

Commodity Insight: More bullish yet

The U.S. Department of Agriculture recently released a World Agricultural Supply and Demand Estimates report that was wildly bullish for the grain complex.

The USDA lower ending soybean stocks near pipeline levels, which means the United States is on the verge of running out of supplies. They also cut its average 2020 corn yield projects by 3.8 bushels per acre, the largest reduction in more than a quarter of a century.

Grain prices, in turn, soared sharply higher on the news to their best levels in five to seven years.

The report simply highlighted that U.S. corn and soybean prices must rise high enough to ration demand in the weeks and months ahead. In my view, a major downtrend with corn and soybean prices is unlikely until the U.S. crops are seeded in a timely manner this spring.

Between now and then, the grain complex is going to be very sensitive to new buying by China and the weather outlook in South America, where the Brazilian and Argentine corn and soybean crops are already under stress.

What is not being discussed all that loudly since the WASDE report was announced is a theory to which I subscribe: ending stocks of corn and soybeans are so razor thin that it will take at least two years of bumper crops to replenish supplies.

In other words, yes, grain prices have rallied dramatically over the past few months, but the bull markets now well underway are not a one-time phenomenon. Grain prices are looking at multi-year bull markets.

It is also interesting to note that not only are grains and commodity prices, per se, moving higher, but for the first time in over a decade, Wall Street is sitting up and taking notice of that fact.

From Bloomberg News a short time ago with a headline that screams, “Wall Street Is Most Bullish on Commodities in a Decade:” “Commodity investors are back in full force, with record wagers that crops, metals and oil are set for a rally.

“A weakening dollar is making materials denominated in the currency more appealing at a time when equities are on a tear and the world is on a path to recover from the coronavirus pandemic. All of that has prompted speculators to pile back into commodity markets, boosting combined bets on rising prices to the highest in at least a decade.”

Basically, the January WASDE report pegged supplies of corn and soybeans at levels seen 2011 to 2013, the time of the last boom with grain prices.

In 2011, due to tight supplies, corn futures rose to $8.47 a bushel and soybean prices jumped as high as $17.83. Compared to 2011, corn and soybean prices today look cheap.

Helping the grain complex move higher are other commodities also doing well. Crude oil, a leading indicator for commodities this week, hit a one-year high. Copper, another leading indicator for commodities and the Dow, hit a new six-year high.

The CRB index and the Goldman Sachs index that are to commodities as the Dow Jones is to stocks hit a one-year high this week. By any measure, it was a great week.

In the past, burdensome supplies and fear the Fed would hike interest rates kept grains and most commodity markets depressed and price rallies were short lived.

But here is a statement this week from the Fed Chair Jerome Powell regarding inflation: “When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon.”

The Fed, as I have stated time and again in this column, is encouraging inflation, asking for more inflation, and that is one of the primary reasons I believe a super cycle for commodities is unfolding before our eyes.

It will take several years of ideal growing conditions to replenish the razor-thin stockpiles of corn and soybeans. Any sort of weather issues in South America this winter as their crops are growing or this coming summer when corn and soybean crops are made or broken will only push prices even higher.

No doubt the January WASDE report was wildly bullish. But here is a rub: my work suggests loudly the February WASDE report due for release in a month will be more bullish yet — yes, more bullish yet.

All grain and livestock producers should grasp the fact that a new super cycle for commodities is underway. With the key to success in agricultural being marketing, get your hands on the best information you can find — and while searching, take a peek at my new website, commodityinsite.com.