Harvest season is coming to an end in my neck of the woods. I stopped into the local watering hole to get an update from my farmer buddies. Everyone was very excited about their harvest figures. Many exceeded their yield expectations. They are also very excited about the price of their commodities.
Above is the 1-year chart for corn futures. What these farmers believe is that the price has found a new baseline and they expect it to ramp up again like it did in May.
As a refresher, as the year goes on farmers will begin to estimate their crop and sell some prior to harvest. The farmers that I spoke to had a range of answers on how much they pre-sold. Now some have sold more for tax purposes but many are trying to hold on a little bit longer because they feel the corn price is going to get stronger. One gentleman in particular has the belief that January will get very strong wheat and corn prices. He said, “I know there are many farmers just like me. They usually sell more early on but have held back because this year was different. Now they are selling some to balance out their taxes but that selling pressure is going to end soon and then the price is really going to run up.”
This run-up is supported by the most recent USDA Wheat Outlook. In the opening paragraph the economic research service states,
“This futures rally contributes to the expectation that the farmgate wheat price in the coming months will continue to remain robust.”
In the USDA’s Feed Outlook, they state something similar for corn.
“Although down from the summer, prices remain higher than last year, signifying robust demand remains in the market.”
Previously when I questioned these guys about why soft commodity prices would get stronger, only one referenced inflation. This time around, all mentioned it. The inflation horse has left the stable. All know that they are facing higher prices for repairs, fertilizer, and chemicals. They also know that the prices of commodities will have to go up or farmers will go out of business. This would be bad news for everybody.
There are several ways to invest in the soft commodities. You can do it individually with ETFs CORN or WEAT. Futures contracts are traded under ZW, ZC. Oat futures trade under ZO. Also there are ETFs which track a broad range such as RJA or DBA.
One commodity that has stood out to me recently is coffee. 60% of the world’s production is from a specific variety, arabica. The world’s main supplier of arabica coffee beans is Brazil which is suffering from a “once-in-a-generation” frost followed by drought. This is due to the La Nina weather pattern. It has caused many coffee plants to die. Farmers have been removing the damaged trees but new ones take several years before they produce. Bloomberg put out a piece last month that has the details. For those interested in trading coffee, futures are traded under ticker KC and there is a dedicated ETF trading under the ticker JO.
I’ll be out tomorrow and Thursday but I plan on getting a report published Friday when the CPI hits. I expect it could be a market moving day, especially for gold and silver.