Weekly Market Recap and Tom's Take, October 23, 2020

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MARKET UPDATE:

December corn futures gained 3 today, closing at $4.19 1/4. That is up more than 17 for the week. March corn ended at $4.20 1/4, up 2, and gaining more than 13 week on week. 

January soybean futures added 8 3/4 today, to end at $10.81, adding 30 3/4 for the week. March futures were also up 8 3/4 today, putting them at $10.67 1/2, up about 30 this week. Please note that March futures are 13 1/2 cents LESS than January soybean futures. That inverse continues to widen for every subsequent month this crop year, before the bottom drops out for November 2021, which closed at $9.82 3/4 today, almost a dollar less than January futures.

This week’s BIG Story is somewhat along the same lines of what we discussed last week: the continued resiliency of both corn and soybean prices. This week, we saw both hit recent contract highs with January bean futures above $10.80, and December corn hitting $4.20 right before today’s close. In fact, the board closed near those highs today. 

Whenever we get to these types of levels, invariably I start to hear the word “volatility” a lot more often. Very broadly, volatility is defined as the likelihood to change rapidly, especially for the worse. You’ve heard about people with a volatile temperament; it is rarely used in a good way to describe people. 

In a more specific sense, from a trading perspective, volatility is defined as a statistical measure of the dispersion of returns for a specific investment or market index, basically measuring the likelihood of something to change from the current price level. With regard to grain trading, there is a constantly updated measure of “volatility” or “vol” for every commodity and every futures month traded. So, when we say January futures are volatile, we could actually quantify it for you if you’d like. 

Right now, it feels like a lot of farmers are, in essence, buying volatility, whether they are sitting on unsold bushels in the elevator or in their own bin. Now, don’t get me wrong, a little volatility is usually a good thing and somewhat necessary in the grain business. But when volatility increases, it just means we have a higher likelihood of the market doing something bad, like dropping 10% or more, which would be 40 to 50 cents on corn and a dollar or more on beans. This might not happen, and it might not happen quickly, but it’s more likely to happen. 

If you’re a contrarian or someone that likes to look at the other side of the coin and contemplate how you could take advantage of a situation where things might fall apart or drop precipitously, did you know you can actually SELL volatility? You can do this by using our Bonus Premium contract. We would actually pay you more than our current bid for bushels you want to sell now if you would put in an offer for the same amount of next year’s bushels at a level above the current price for that delivery period. This is a great way to take advantage of a relatively high price AND high volatility at the same time. For complete details, please discuss this with your local Grain Marketing Advisor. 

For more items impacting prices, tune into our free weekly podcast, The Bull Bear Banter, which can be found here: https://landusexperience.podbean.com/

TOM’S TAKE:

Earlier this week, we sent out our GROW on the GO electronic newsletter. The articles contained in that are also posted on our website. I particularly liked the one about Dr. Charles Hurburgh regarding storing corn and soybeans on the farm this year.

He has several important items to note:

The main one is don’t store this grain for long, due to the storability matrix he runs every year. His initial research indicates that any quality issues will show up quickly and become a much bigger problem than normal. This ties in well with what we’ve been saying about the inverse already showing in the soybean market as well as the relatively flat cash corn bids for delivery from December through July of next summer. There are many reasons not to sit on it for too long.

His second point is that if the corn isn’t dried properly and quickly, anything with damage will grow mold and become more dangerous to cattle and humans. Damaged corn doesn’t give up moisture as easily and will lose less during cool down than other kernels.

Test weight is also a very important factor for this year’s corn crop. It needs to be at least 55 pounds per bushel to have a chance to store well. Low test weight is a very good indicator of damage and stress. Low test weight corn is also not handled well by poultry.

So, keep a close eye on your bins as this fall turns into winter. I always remember an Old Boy telling me he tries to think of that bin of corn as full of silver dollars. Because, if it was, he’d be out there every day making sure it was OK. He always told me, “I’ve worked too hard raising that crop…I don’t want to take less than it’s worth because I made bad decisions managing it once it’s in the bin…” I always thought that was a good way to think about it.

Let me know if there is anything I can help you with or answer any questions for you