Three Strikes

Written for Sevita by Bailey Elchinger, Risk Management Consultant and Regional Director, FCM Division of StoneX Financial Inc.

To be honest I am running out of funny ‘puns’ that imply things don’t look good. The bean market continues to drift lower and put a hurting to producers across North America. We have discussed that ‘what goes up must come down’ and that the bean market is having a tough time ‘getting up off the mat’ what other way can I say - “this market stinks”? It sure feels like we have been in the middle of a very long baseball game all summer. We are entering the bottom of the ninth, the score is 1-0, we are down by one run and have an 3-2 count. We’ve put a few runners on base but have left them standing. The ”full count” has us left to the mercy of the pitcher and a little luck.

Swing a Miss

The spring started off with some wet weather that left many producers staring down a straight fast ball that should have led to an easy double and a market rally. Instead, the producers, many of which had been waiting for the perfect ‘pitch’ to make their grain sale were “swinging for the fences” and sadly missed the ball all together. As the summer, and game, progressed the weather across the bulk of the corn belt was not viewed as threatening enough to cause the market to rally. This left many producers with unfilled target orders above the market and an incredible amount of both old crop and new crop corn and beans unsold. This begins to put a lot of pressure on the ‘offense’ late in the game.

Two Outs

Both the months of June and July saw the bean market attempt to bounce higher. These minor bounces were met with farmer selling and some ‘base hits’ getting some runners on base. Slight weather concerns caused those selling opportunities in the futures market but they never materialized into a sustained rally. The sheer size of the South American crop continued to plague North American competitiveness. Economic issues in China were another cause for concern that, I believe, hindered any optimism in the bean market. Ultimately, those runners were left standing as the bounces gave many of us hope that the index funds would start to cover their short position and a more sustained rally would occur. Instead, the runners were left stranded and grain marketing decisions were left un-made. Outside market news also plagued the bean market in August as well as general economic concerns both in North America and Asia.

Bottom of the Ninth

As the saying goes the show is not over until the ‘lady sings’. The month of August could also be called the bottom of the ninth inning for the bean crop. The game is not over and the weather in August can still determine the size of the bean crop. Private yield estimates and tour results continued to find strong yield potential for beans in August and that continued to allow the funds to confidently be short the bean market. We have simply been unable to find a story that scares the end users and index funds into needing to buy their positions back. Of course, there is still limited hope that a late season drought or weather issue could lead to the market rallying. But, many times those runners are left stranded, and so far that appears to be the case this month.

Foul Ball

We did see US bean exports finally pick up in the month of August. Sadly, those hits seemed to merely be ‘foul balls’ so far. The bean market has managed to string a couple of stronger days in the row together on the export news, but that strength has been met with farmer selling and a subsequent sell-off in the market. The question must be asked, what story will the market need to see to put together a substantial rally? What circumstances must be in place for the 3-2 count to still turn out to be an RBI for the ’home team’.

Rather than ‘swinging for the fences’ producers should know the stakes at hand and the odds they face going into harvest this fall. With unsold grain on hand and a large crop expected the odds are stacked against them. We should be prepared to take a swing at smart pricing opportunities presented to us and not take our eye off the ball. Remember – singles and doubles win ball games.