Early 2021 Market Thoughts

Early 2021 Market Thoughts

2021 is looking to be an outstanding year. We opened the year with great price rallies and renewed optimism for agricultural prices. It has been a long time since we were able to sell $14 beans and $5 corn. A recent survey listed producer optimism up 34% over last year. Most sectors of agriculture are benefiting in the markets. Yes, I know that cattle prices have eroded about 8% from a year ago, but there have been many opportunities for these producers to capture some significant profits for the coming year.
The January WASDE report was very bullish for the major grain commodities. When the report was released, corn futures jumped higher with nearby markets hitting the 25 cent limit. Days after the report, we traded with expanded limits of 40 cents.
What did the USDA say to make such a stir?
Corn
There were multiple surprises in this report. First, the USDA cut the planted acres of corn in 2020 by 60,000 acres. Then, they reduced the national yield by 3.8 bushels per acre from the November report. At the same time the USDA recorded a large disappearance of crop over the last quarter.
In all, the USDA came up with 629 million bushels less than most trade guesses.
Soybeans
At time of writing this, soybeans are up yet again with today posting a rally of 45.5 cents. Today, producers can move soybeans at over $14. This is now the highest price for beans in 6.5 years. With the USDA trimming the ending stocks in this report, all eyes will be turning to South America to see if there is further dry conditions that could reduce harvest. We are nearing the time of year when South America supplies start taking over exports to China. It will be interesting to see how their crops progress and see if Chinese demand slows at all.
Cattle
During the last quarter of 2020 cattle prices rose significantly. This gave producers the opportunity to establish some very attractive price floors for the coming year with the LRP products. Since December, the cattle markets have softened due to the increase in grain prices. This is especially true in the feeder cattle contracts. However, with that being said, these markets did not fall near as much as many people expected. Products are still moving off the shelf and our consumers seem to have a more static or inelastic demand when it comes to beef. When we listen to most analysis in the industry, there is considerable up side potential for the coming year.
Other commodities
Most other commodity prices have increased in the same nature as the agriculture sector. Since August, steel prices have doubled and lumber prices have remained high. The Corona Virus which caused labor reductions has been a big cause of these inflated prices. As the economy starts to build back to full employment, these price will surely stay inflated until our supply can be built back to a stable level. In the near future, machinery, autos, and building material may all see some increased pricing.
If the Feds let the economy work, these markets will stabilize. With intervention this trend could continue for a longer period of time. Generally, interest rates follow inflation. We have been blessed with low interest rates for sometime but these rates could begin to rise in 2021.

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