Since the middle of August, the corn market has experienced a bit of a holding pattern, with trade sticking mostly sideways.
Joe Vaclavik, founder and president of Standard Grain, says a big part of what is playing into this pattern is the uncertainty surrounding the size of the crop in the U.S.
“I think there’s a lot of traders who believe — if you’re on the bull side of it, at least — you may be believe that the yield number comes down a little bit more. And then maybe the USDA is overstating production by a little bit, and that would be a reason to be friendly to the market,” he explains.
If you are on the bearish side of the corn market, Vaclavik says there’s a lot of things to talk about there, too, including recession risks.
“We’re starting to see some bad ethanol production numbers, which is kind of normal this time of year, but they’ve been especially bad here the last couple of weeks. So I think that those would be your fears, along with just general harvest pressure.”
So, if the bulls and the bears both have something there, where does an analyst such as Vaclavik sit?
Currently, he thinks the bears have a stronger argument.
“The demand has not been fantastic,” he explains. “Like I mentioned, ethanol exports have not been great. I see South America starting to plant corn, the first corn crop in Brazil, corn in Argentina. I don’t know if harvest pressure is going to be a big deal or not. This recession stuff just scares the heck out of me. To be honest, if things get bad enough — interest rates get high enough, and stock market gets low enough — there’s going to be large money managers, and speculators that just want out of the market.
“I think the markets go up, but I’m more worried about the downside. You can make good arguments on both sides, there’s no doubt.”
The reason that a lot of times commodities sell off ahead of a recession — or as much as they can predict of a recession — is because demand for commodities typically drops off when a recession hits. As Vaclavik explains, the selling you’ll see is not just technical, they’re doing it for the reason they think that demand will be reduced.
“We’ve already seen that in a lot of markets, and you’ve seen it in the energies. You’ve seen it in precious metals, industrial metals, I think you’re seeing it in livestock. The grain markets have been largely immune to some of that — but that doesn’t have to last forever.”
Check out the full conversation between Joe Vaclavik and RealAg Radio host Shaun Haney, below, including an update on the soybean market: