The markets have had quite a back-and-forth swing over the past couple of weeks. Joe Vaclavik, Founder and President of Standard Grain in Nashville, Tennessee, says late June through early August is a weather market.
“If you look at what happened this past weekend, there was some rain in some place and southern Iowa caught a lot of rain, parts of Western Illinois, Indiana, parts of Michigan,” he said. “There’s a lot of coverage when you look at the maps but the amounts, we’re not necessarily that great. Northern Iowa, southern Minnesota didn’t really do that great in terms of rain. I don’t think South Dakota did that great, parts of North Dakota did okay, but not everything is that great. It kind of looks to me like this year we’re setting up for this divide, where the central and eastern areas of the Corn Belt are going to do okay in regard to precipitation, and you’re gonna have western areas really from North Dakota down south through South Dakota, through Nebraska, through maybe Kansas and Oklahoma, that may be drier by comparison, and I’m not quite sure how the market is going to reconcile that.”
While weather tends to be the dominant factor, it’s not the only thing that influences markets this time of year.
“There was a lot of chatter and nervousness regarding that story about biofuels, the EPA, the Biden administration, this idea that they may, in some way shape or form, provide relief to oil refiners through reduced mandate, through some sort of declaration, that would be really bad news for the corn market, if realized, because it would hurt the biggest segment of your demand base for U.S. corn,” Vaclavik said. “I think that that’s one big factor. I think that the fact the Fed came out last week and essentially moved up the timeline for an interest rate hike is a negative factor. It resulted in a big rally of the U.S. dollar, which sent just about every commodity market on the planet lower. We’ve kind of stabilized following that deal, but that was an additional factor last week.”
He talks about factors to watch for in the markets during the weeks ahead.
“I would probably be aware of the seasonal tendencies of these markets, and I will be the first to tell you that the seasonal tendencies have not played out the way that they normally would over the last year. We had kind of a contra-seasonal year last year; We rallied into harvest, through harvest, we didn’t follow the seasonals at all. But over the long term, July, August, and September, can be really ugly months for these row crop markets. If you get into a situation where the weather is good enough and got good enough looking crops, they start to take the weather premium out of the markets in July, August, and September. Those are historically about your three worst months of the year regarding action in the row crop market.”
There’s no question that 2020 was an unusual year in the markets. While he expects 2021 to be nearer to what we normally expect, the question is how normal it will turn out to be.
“Well, that’s kind of the million-dollar question now; do we go back to some sort of normalcy regarding seasonal patterns, regarding the way that the world works? I mean 2020 affected every market on the planet, and not just the grain markets, in ways that we would not have seen otherwise because of COVID, because of the lockdown, because of reduced economic activity, reduced driving. Government stimulus might be the biggest factor in all of that. I mean how many trillions of dollars did the government print, and how much of an impact did that have on these very markets. So, I think 2020 one’s going to be slightly more normal, but I think in a lot of ways you’re still feeling the impact of 2020 in the supply chain and the way markets are priced, and a lot of different things.”
Source: NAFB News Service