What's in Store for '24?

• Despite what we hear with most market chatter, US grains and oilseeds will not be driven by the strength and/or weakness of the US dollar next year. 
• What matters is geopolitics (e.g. trade wars, real wars, etc.) and weather. 
• Grain and oilseed markets are weather derivatives meaning patterns across key growing areas will again influence available supplies. 

We’ve reached the end of another year, meaning it’s time to dust off the crystal ball and take a look at what could happen once the calendar page turns. As I talked about last week, the spotlight will burn brightest on global stock markets, including the Big Three US markets (S&P 500, Dow Jones Industrial Average, and Nasdaq), and US Treasuries. This time around I want to look ahead at the Grains sector and see what we know (or think we know) as 2023 comes to an end. Here are 3 things to focus on heading into 2024: 

First, it’s not about the US dollar. I’ve seen the question come up time and time again the last few months, “Why are US grain markets continuing to struggle while the US dollar is weakening?” The answer is simple: Trade Wars. Sure, I know there are a number of other peripheral factors to consider, but if we want to boil the problem with demand for US agricultural commodities to one sentence it would be, “The world’s largest buyer won’t buy any more than it has to from the US”. Why? It has to do with a Twitter-driven (yes, it was still known as Twitter back then) trade war that began back in January 2018. That same February I had the privilege of attending a US Soybean Export Council meeting in Cartagena, Colombia. One of the speakers, Mr. Bell Chen of RJ O’Brien said something to the effect of, “China is doing the calculations to remove US supplies as much as it can from its imports”. Since then, the US has fallen to a secondary player in the global soybean market with the latest WASDE projection showing US exports of 47.76 mmt, roughly 48% of Brazil’s estimated 99.5 mmt. Additionally, for the second consecutive marketing year the US is expected to export less corn than Brazil.

Second, weather will again be the driving factor. After all, the Grains sector is made up of markets that are weather derivatives at heart. It will be the weather that largely decides which of the world’s largest suppliers has available supplies to meet the demand of not only the biggest buyer, but the rest of the world as well. Heading into Friday’s session the US had plenty of grains and oilseeds with the Thursday evening Cash Indexes showing correlations of: 

• Corn priced near $4.45 correlating to 12.1% (as compared to the end of December 2022 of $6.90 and 8.3%
• Soybeans: $12.55 and 7.5% (December 2022 = $15.00 and 3.9%)
• SRW Wheat: $5.64 and 40.2% (December 2022 = $7.48 and 30.7%)
• HRW Wheat: $5.86 and 39.2% (December 2022 = $8.57 and 27.4%)
• HRS Wheat: $6.94 and 37.4% (December 2022 = $9.14 and 28.5%) 

The bottom line is the US has more available supplies in relation to demand than it did a year ago, across the board. If US markets are to see a strong rally, it will have to come from the demand side. As for exports, the latest weekly update showed 2023-2024 total sales (total shipments plus unshipped sales) of: 

• Corn = 1.158 bb, up 37% from the same week last marketing year. 
• Soybeans = 1.335 bb, down 15% from the same week last marketing year.
• All Wheat = 556 mb, up 1% from the same week last marketing year.

Third, there looks to be a flow of money out of commodities, including the Grains sector, and into stocks and Treasuries. A look at the latest CFTC Commitments of Traders report (legacy, futures only) shows activity in the Three Kings of Commodities:

• Corn: A reduction in the net-short futures position from 157,148 contracts (week of November 28) to a net-short of 127,650 contracts through this past Tuesday, December 26
• Crude Oil: A reduction of the net-long futures position from 350,055 contracts (week of September 26) to a net-long of 199,280 contracts as of Tuesday, December 26
• Gold: An increase in the net-long futures position from 71,433 contracts (week of October 10) to a net-long of 207,700 contracts as of Tuesday, December 26

Why are investment traders buying gold and selling the rest of the commodity complex (generally) heading into the new year? A couple reasons: First, supply and demand has loosened (again, generally) in most commodity markets as indicated by futures spreads. The outlier continues to be Softs, with cocoa the latest market to show signs of a global supply and demand squeeze. Second, gold has long been viewed as a safe haven market and that could be important in 2024. It’s another presidential election year for the US, and gold is indicating BRICS (Brazil, Russia, India, China, and Saudi Arabia), along with their minions the next level down THINkS (Turkey, Hungary, Iraq, North Korea, and Syria) set to create more geopolitical chaos in hopes of swinging the election in their favor. At the same time, recent stories on financial websites have talked about how the average US household is more active in US stock markets than ever before. This both makes sense (Newsom’s Rule #7: Stock markets go up over time) and is concerning (The majority is usually wrong). 

• Crude Closes Lower on Energy Demand Concerns and Increased Russian Exports
• Nat-Gas Prices Fall Back on Warmer U.S. Weather Forecasts
• 2024 Inflation Crisis: ETF Solutions
• Crude Slightly Higher on Year-End Fund Short Covering

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