I believe it is fair to say that the average individual today does not pay much attention to what is happening in commodity markets. Oh sure, if fuel or meat prices spike higher, things that are reflected in consumer prices quickly, it may spark a bit of interest and grumbling. Still, as a whole, they are more likely to tune in to the latest updates on equity markets or possibly interest rates, even if those things do not immediately impact their day to day lives. I suspect, part of this relates to the fact that over the past half-decade, commodities as a whole have been rather stagnant so we have grown accustomed to little fanfare from that sector The REAL fun, if you equate fun with market rallies, has been in the equity world where it would appear you cannot find a story, outside of a tweet from the White House, that cannot be interpreted as bullish. While I may be getting ahead of the curve just a bit, but if the price action we have been witnessing in the grain/soy world over the past several months is at all indicative, we may have begun a transition into a new phase.
Emerging from the bowels of commodity hell, corn, wheat, and soybeans have been enjoying a rather steady advance during the past several months and are now pressing against what has been key resistance for the past six years. This advance has been spurred along by the trifecta of, a resurgence in demand, a recognition that crops will not be as large as once assumed, and a breakdown in the dollar. Of course, it did not hurt that as these factors began to reveal themselves, large speculators were caught with their shorts down, (pun intended). All that said, we have now adapted to these changes and it would seem reasonable to expect this advance to begin sputtering. Export interest has now become the expectation instead of the exception, we have dialed back production numbers here in the U.S. and the dollar has stabilized for now and even rebounded a bit. As far as the large spec, they are now long across much of the ag world and in beans, maybe to the point that the boat is leaning too far in the other direction. While there could be other stimuli that would bring in additional buying, i.e., serious production problems in Brazil, with what we know today, it would appear that it will be difficult to justify much more upside in these markets. To put it plainly, as a producer, you should be rewarding this rally if you have not done so already.
Be that as it may, the longer-term chart picture finally appears to be showing us signs that we are close to wrapping up this chapter of stagnant prices and are preparing the turn the page to the next. Recognize, I am not suggesting we are primed for the next bull explosion, such as witnessed between 2007 and 2012 or the early 1970s, but rather, but looking out into next year and beyond, we should have the potential to push above resistance that has stopped up prices during the past half-decade Do keep in mind that we remain in the supply side of the long-term cycle, so advances will most likely be stimulated by production problems, so for a producer, higher prices do not necessarily translate into greater revenue.
While a hiccup with crop production in some part of the globe would seem to be the most obvious choice for a stimulus, there is one other element that we need to be mindful of; the direction of the U.S. Dollar. As I mentioned previously, the dollar has stabilized over the past month or so and even bounced a bit higher, but I believe longer-term, our currency is headed for lower ground. You cannot continue holding interest rates at artificially low levels and continue pumping money into an economy, without seeing your currency devalue, and I suspect the only thing that has kept it in check thus far, has been the global uncertainty surrounding COVID-19. The one caveat here would be if other economies around the world began to suffer more than we, but that does not appear to be the case, particularly China.
As a final cautionary word to producers, I would emphasize that by no means would I want these comments to be interpreted as carte blanche to be bullish and hold on to your products. Disciplined and well-executed risk management and marketing programs with a solid understanding of global fundamentals and long-term cyclical patterns will be more important than ever. That said, if I am correct, marketing can be a lot more pleasurable when prices can come to you and you can play offense, instead of chasing after them and playing defense.