It is likely commodity prices will continue to be under pressure throughout 2018. However, some analysts also see opportunity in export demand from China and the potential for weather woes. Opportunities to sell for a profit in 2018 will present themselves in short windows.
Bill Biedermann, Allendale Inc.: Volatility in 2017 dropped to historical lows as prices fell below producer breakevens. Is this a sign of what to expect in the future? Maybe in the next one to six months, but not in the next two years. Starch grains and oilseeds have huge supplies.
But the market is doing its job. In the past three years, world corn demand has increased 10% to a record 1,064 million metric tons (MMT), and soybean demand has increased 9.5% to a record 344 MMT. Yet all we hear is how bearish everything is. This is long-term bullish. First, grain and oilseed markets are well balanced. Second, funds will buy grains. Since 2008, world-orchestrated government stimulus initiatives have caused significant economic growth that is now being reinvested. Funds are building an inflation-based position around food and fuel.
Unless NAFTA completely breaks down, or something else causes a serious crash in stocks, funds are highly likely to buy grains soon. Producers should retain all ownership into 2018.
Richard Brock, Brock Associates: Corn use in China is a key fundamental to watch over the next five years. For more than 40 years, many in the industry have been touting China as the savior for commodity prices. They have been a large consumer of pork and soybeans, for sure. But their corn purchases have been nearly nonexistent. As they increase ethanol usage, that might change for the long-term benefit of corn.
With the sharp increase in yields farmers have experienced this fall, many are already over breakeven levels. Breakevens change considerably when corn yields go from 200 to 240 bu. per acre. Once the market gets above breakeven, prices normally trend higher.
Alan Brugler, Brugler Marketing & Management: The biggest macro risk to U.S. agriculture in 2018 is likely either the partial loss of NAFTA markets or something EPA does to screw up ethanol. A correction in the U.S. stock market might actually help drive more investment dollars to commodities. A weather scare will pose the best upside potential for wheat, similar to what happened this year when the U.S. and Australia experienced drought problems. Global stocks outside the U.S. and China are likely to tighten in 2018, so supply surprises should have more impact. A crop problem in Russia would have the most impact.
Storage spreads supply over time. In a low-price situation, look for price perceptions to change over time in the bullish direction. For hedgers, bin space allows stronger basis bids than others can get because producers can move grain at very low board-price levels. November through January is one window for moving grain from storage if weather blocks other supplies. July futures failed to rally enough to cover storage costs from the fall high in more than half of the past 40 years.
Angie Setzer, Citizens Elevator: Watch the safrinha crop in Brazil very closely. It is responsible for nearly 75% of Brazilian corn production. A smaller-than-expected crop could result in larger-than-anticipated corn exports for the U.S. in the last half of the marketing year.
Pay attention in 2018, as geopolitical tension with the usual suspects will remain. Closely monitor economic developments as the U.S. transitions away from global stimulus and cheap money, too. While the market might feel comfortable with supplies, the fact China is holding on to 48% of the world’s wheat cannot be ignored forever.
Producers should look at the opportunities that presented themselves this year. Next year will present a very similar pricing path. Cash flow and space are the two main determinants when it comes to making sales decisions. Make sure profitability drives selling decisions, not what could happen.
Bob Utterback, Utterback Marketing Services: The five-year average forecast by several U.S. government agencies for domestic corn and soybean prices suggests a U.S. average of $3.60 corn and $9.57 soybeans, and it could be accurate. Most on-farm costs lie close to those numbers, suggesting an extended period of extremely tight margins. Great uncertainty lies ahead for 2018; price improvement might not be seen until stocks are reduced, and that might not occur until 2020.
Downside corn and soybean cash price risk exposure will present itself from January to March if no South American weather stress develops. Expect a modest April-to-July rally with old crop soybeans leading the way. Corn will be hampered by big on-farm inventory levels. If no weather event occurs in U.S. crops next year, the final flush in prices will be from the fall of 2018 into the winter of 2019 for all crops.
Naomi Blohm, Stewart-Peterson: It will take poor wheat crops in more than two leading wheat-producing countries to get global wheat prices to rally. A wheat acreage battle might happen in 2019.
Be ready to pull the trigger if prices reach break-even levels. Although demand is strong and has been growing, prices are stuck in a range because of bumper crops over the past three years. A price rally in grains hinges on poor production somewhere in the world. If South America and the U.S. end up producing bountiful crops in 2018, prices will be stuck in this sideways trading range for another year.
Focus first and foremost on cash sales. Corn basis will likely stay wide this year, so focus on using futures and options to capture price opportunities with your marketing.
Mark Gold, Top Third Ag Marketing: South American weather will most likely be the most influential factor through the end of the year. Markets will need to see something that reduces carryouts in the near term. Trade issues might be the most influential geopolitical factor. Will President Donald Trump use trade to try and push his agendas with both NAFTA and China?
There are several factors that could help prices recover, including production problems in South America or a reduction of planted acres in the U.S. We need to reduce U.S. acres by 5 million to 10 million to have a major effect on carryouts. There are 4 million acres of soybeans that could move back into corn, but with corn prices this low, it is more likely farmers will reduce corn acres and plant more soybeans.
Ray Grabanski, Progressive Ag: Most U.S. supply factors are known. Only the January revisions to corn and soybean yields are left for the 2017 crop year. Demand, especially export demand, is always uncertain. That’s especially true for Chinese soybean imports. Soybean exports have been hiked considerably this year, and while USDA in the past has underestimated exports to China, this year could be different. The major near-term factor is the size of the South American crop.
The biggest geopolitical factor seems to be the Trump administration and the change it represents compared to the previous administration. The stock market especially appreciates that change and has rallied to new all-time highs. Wheat prices have struggled lately. Winter wheat acres have shrunk by an unprecedented 10% per year for two years, representing huge declines. But the fact producers have lost money on wheat (and corn for that matter) and made money on soybeans makes their choice for 2018 easy: expand soybean acres and cut wheat and corn acres. Sell options aggressively in 2018 at opportune times, as prices are just not moving much in any commodity right now. Collecting that premium up to five or six times per year might be the difference between losing and making money.