David Hightower of the Hightower report
David Hightower, president of The Hightower Report, spoke during the Global Grain North America conference July 12-14 in Miami, Florida, U.S.
 
MIAMI, FLORIDA, U.S. – Near-negative interest rates, large supplies of crude oil and negative psychology toward China may seem to point toward a bear market in commodities, but David Hightower, president of The Hightower Report, believes nothing could be further from the truth.

“We are near the cost of production in a lot of commodities,” said Hightower during the Global Grains North America Conference July 12-14 in Miami, Florida, U.S. The Hightower Report is a commodity research and information firm based in Chicago, Illinois, U.S. “While the market may not work quickly, it does work over the long run. Low prices stimulate demand and curb supply.
“When you look at the world market, supply is contracting and demand is probably going to get better as the world economy waddles its way out of this slowdown.”

The year started with some of the most negative views for prices, Hightower said, and there were historic ending stock figures for soybeans. Low prices for many commodities were instigated by oversupply and a best-case scenario for production.

“We worked ourselves into 650 million to 700 million in ending stocks for soybeans and 3 billion in ending stocks for corn,” Hightower said. “Six months hence we found out that oil production was injured, corn production was injured and we are 10 days from the most critical yield period for soybeans. Consumption is so big that if we have minor nicks in production, it can change the complexion of the grain markets.”

A two-bushel decline in the U.S. soybean yield would result in a 3% stocks-to-use ratio and equate to a $14 to $15 price in soybeans, he said. But a two-bushel increase doesn’t necessarily result in an overwhelming negative outlook.

Soybeans have the most volatile two-month potential that Hightower said he has seen in the last 10 years. It wouldn’t take much to see soybean oil doubling or tripling in price in the next few months.

“The bean market is up for grabs. We are going to get higher ending stocks; it’s very difficult to avoid that,” he said. “But if we have a two-bushel setback in yield, we can go from a bearish to a completely bullish scenario.”

The corn market is likely within 10¢ to 15¢ of a major low, and in the short term will see the worst-case scenario with low prices for the next 12 to 18 months, Hightower said. 

“The corn market hit a huge deflationary low, and now we’re below that low because the expectation for yield is walking up the ladder,” he said. “Corn is not going to come roaring off the bottom, but we’re also not going to see much lower pricing. When we look back a year from now, we’re going to find out these prices should have been acted upon.”

Reports of China’s large corn surplus are likely overstated, Hightower said. And because of its lengthy time in storage, the surplus corn China does have is likely in poor condition. 

“The amount of supply they say they have, they don’t have,” he said. 

Hightower noted that going into the next crop year, Ukraine and its potential for a big crop could tip corn prices lower. The nation has the ability to be one of the lowest-cost corn producers in the world, he said. It is in the midst of large investments in infrastructure, shipping and grain processing. 

“What happens in the Ukraine is important to the world,” Hightower said. “Its importance in the export market is huge.”

Wheat is seeing 29-year highs in stocks, and the market is starting to see more wheat being used for feed because of its price.

“That alone is cleaning up the ending stocks and world supply, but it’s an avalanche (of supply),” Hightower said.

India will be key, given its large production over the last two years. There was nowhere to store it, so much of the wheat is in substandard storage, he said. 

“We’re starting to use wheat in ways we did not use it before,” he said. 

While many are discounting China because its economic growth is slowing, Hightower said the nation is still a factor in the global economic picture. He expects China’s soybean imports will remain strong.

“China is a lagging indicator of the world economy,” he said. “China is still a major force in the market place.”