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October 28, 2020 | FBN Insights | Kevin McNew

Profit Taking Ahead of Election

Contested U.S. Presidential election next Tuesday may increase volatility in markets

Profit Taking Ahead of Election

  • Many markets fell overnight as money managers looked to reduce risk.
  • Some see the possibility that a contested U.S. Presidential election coming next Tuesday may increase volatility in markets.
  • Coronavirus cases have surged in the U.S. and in other parts of the world, increasing fears of demand loss.
  • U.S. lawmakers have so far failed to agree on a new economic aid package, which would help stimulate demand.
  • The S&P 500 is down about 1.5% overnight and crude oil prices have slid back below $38 per barrel.
  • Money managers were holding a near record long position in agricultural commodities as of last Tuesday.

FBN’s Take On What It Means: Grain prices have been in a nearly uninterrupted bull market since August, and it’s not surprising that a correction would take place at some point. Falling crude oil prices are a reminder that slack ethanol demand could offset some of the increased corn export sales. However, US cash markets remain firm as harvest nears completion and movement slows which will continue to be supportive on any break.

Brazil Corn Prices Hit New Record

  • Surpassing the previous record in 2007, Brazil’s domestic corn prices hit a new record at $14.49 per sack or about $6.13 per bushel.
  • One Brazilian sack is 60 kilograms, 132.3 pounds, or 2.362 bushels of corn.
  • During October, Brazilian corn prices have jumped 28% according to Cepea, an agricultural firm located in Brazil.
  • Brazil recently removed its corn import tariff through March 31 meaning that countries outside the Mercosur bloc can now export corn to Brazil with zero tariff in place.
  • Its domestic stocks of corn and soybeans are tight with other food items also seeing an increase in price including rice.
  • Brazil’s strong domestic demand along with strong export demand is helping push prices higher for corn and soybeans.

FBN’s Take On What It Means: At FBN, we lean towards Brazil being oversold on its exports of corn and soybeans as a primary reason as to why its domestic prices are hitting records.  This is a positive from a pricing standpoint, but Brazil is expected to increase planted area for both corn and soybeans in the upcoming season.  If there is a normal growing season - which it is not off to a normal start - then prices could come under pressure in a few months. 

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