Navigating Corn and Soybean Markets

ADM interacts with farmers in multiple ways, including through grain purchasing and marketing support, selling fertilizer products, and crop risk planning services. ADM also offers global insights through helpful technology to enable farmers to build successful operations.

One area that is challenging to navigate year over year is the grain market. ADM has an extensive network of traders and market analysts who can help make sense of chaotic markets.

In any given year, a number of factors contribute to supply and demand for corn, soybeans and wheat. In combination, these factors ultimately drive prices. While there is always an element of unpredictability that goes into the market’s direction, professionals agree that this year the grain market is especially challenging (in a good way) to navigate because of supply chain disruptions, historically tight ending stocks and strong demand.

This episode of In the Driver’s Seat is dedicated to breaking down the current grain market—and making sense of it to make informed decisions. Dean Durdan manages the overall ADM corn risk position and helps ADM customers understand market dynamics. Durdan shares valuable insights to help you better understand the grain market and the unique factors at play today.

The global pandemic drastically and suddenly changed life as we knew it. Many would agree that one of the most challenging aspects of this time was living in a constant state of uncertainty about the future. For these and other reasons, the market has been volatile, and, according to Durdan, one reason why we’re seeing historic market trends.

U.S. corn and soybean plantings are virtually complete, and most of the crop has emerged. Ratings indicate the majority of the crop is currently in good to excellent condition.

On the other hand, Brazil’s yield outlook appears less favorable because of an unexpected dry season and a significantly reduced second corn crop. The U.S western Corn Belt also has experienced drier-than-normal conditions and could signal trouble ahead for supply.

Durdan explains that the grain market is either supply- or demand-driven. For most of this year, the market has been driven by demand, thanks to increasing purchases from China, improving ethanol margins, strong cattle-on-feed numbers, and the pandemic’s retreat globally.

“COVID slowed the supply chain of everything down,” said Durdan. “Then all at once, we turned everything back on, and the demand just showed back up. It takes so long to get supply chains sped back up to meet that activity, whether it’s a labor issue or whether it’s an outright supply issue from a commodity standpoint.”

As the U.S. crop emerges and weather comes into play, the market’s attention is now firmly on supply. To meet demand, either supply has to increase by growing bigger crops, or prices must increase enough to temper demand. Durdan points out that Brazil’s lackluster crop makes increasing supply this year more difficult, and, so far, prices have not yet reached levels to curb demand. Meanwhile, an expanding drought in the western and northern plains threatens to shrink U.S. production.

Understanding the Futures Market

Of course, that picture could change in the coming weeks. Durdan notes that the current situation simply reflects a moment in time. The market’s job is to predict what the future will hold based on current “snapshots,” such as crop condition and supply/demand reports, and volatility results from each person’s different expectation of what lies ahead.

“The job of the market,” Durdan explains, “is to try to price exactly where they think that snapshot in time is going to look like.” What does it mean for the long-term supply? Is the potential crop getting bigger or smaller?

The market as a whole develops expectations for the crop, often based on fear over fact, and price direction reacts to whether or not those expectations are met. People tend to exit the market when it fails to meet expectations, but Durdan stresses the importance of playing the long-term game.

“We always have to realize…from a crop report standpoint, it is a moment in time. And even though we see things happening on a day-to-day basis, we can expect to see larger adjustments than what we get.” He expects to see continued volatility in the market until the growing season concludes, and the crop yield is clear.

Looking Ahead

In the meantime, ADM representatives are available to discuss market changes and can offer ideas for managing your grain marketing plan. Durdan notes that 30 years of history shows the market seasonally peaks between mid-June and early July. That’s precisely the period when it will become clear if there’s a potential supply problem through decreasing yields.

The most uncertain period occurs during pollination, in terms of moisture, corn height, and the forecast. This period of “great unknowns,” Durdan says, factors greatly into the market prices. “If there’s fear during this timeframe, you tend to price in a worst-case scenario early because the market goes to that exaggerated level first and asks questions later.”

Eventually, Durdan notes, the market reaches a point where the worst-case scenario has been priced in. The crop can’t get any better or worse. Historically, this results in prices fading in late July, August and into September because it reverts to “wait-and-see time” once again.

If anything is certain this year about selling grain, it’s that these are unprecedented times. Successful grain marketing will require keen attention to the myriad factors at play, strategic planning and abundant patience.