Grain markets and the Monday morning upchuck blues

Grain producers have been on a roller coaster ride this summer, and Monday, July 27, was maybe the worst of the trip.

Monday grain markets took the biggest hits of the year, gapping lower to levels we had hoped we had put behind us a few weeks ago before the rally. Monday, the coaster cars were screaming south down the big hill, and our lunches were lurching north. If this were a country song, we would be singing the Monday morning upchuck blues.

Then, a funny thing happened on the way down the big hill. Prices turned around Tuesday, and we are now wondering if the big drop has finally leveled off. It has been a big ride for just over a month. Most of us are thinking, “please, Lord, give me another rally, and I will know what to do with it this time!”

Prices went south as traders focused on crop condition reports that stopped declining. The perception of improving crops was hard to accept if you were in Ohio or Indiana, and were looking out the window of the pickup.

Crop condition

In fact, even here, the crops have been improving. They just do not seem as good as Uncle Sugar thinks they are. Monday night, the Crop Progress Report showed Ohio’s corn at 47 percent good and excellent, with the U.S. improved 1 percent at 70. The soybeans were 41 percent good and excellent for Ohio, but 62 for the nation, unchanged from last week. Last year the beans were rated at 71 percent good and excellent.

Spec traders have fueled the market move up, and they have mostly been caught long with the market going down again. With them trying to get out, it is hard for the market to make any sustained rally back now that we have had the big break.

Let’s look at the numbers. December corn futures had the contract low the middle of June, with two days at 3.62 3/4. The high was put in the middle of July, at 4.54 1/4, a gain of nearly 92 cents in a month. What a ride!

However, by Monday this week, we had a low of 3.83, and closed just a half-cent higher. Tuesday, after digesting USDA numbers and weather forecasts, we are turning around a little. December corn futures are suddenly up one and a half at 3.85. This is not any big change, but it is a pleasant break from yesterday, when we had the biggest bad day of the year, down 19 1/4 cents.

November bean futures had a similar trade. The old low was 8.95 3/4 the middle June. The high came the middle of July, at 10.45, a gain of nearly $1.50. The break the last two weeks was to 9.31 3/4 Monday, with a close at 9.33 1/4. Today (Tuesday), however, beans have bounced over a dime so far, to 9.44.

The big loss Monday was fueled by better weather ahead of us, although the rain forecast is scattered, and the temperatures are too low for this time of year.

Chinese markets

The biggest impact to prices was the current meltdown in Chinese equity markets. Their stock exchange lost over 8 percent in one day.

Some experts are looking for their problems to continue, as they had fueled a stock rally recently with small traders and borrowed money. That is a position that is weak. China has become a huge trading partner in recent years, trading Dirt Devil vacuum cleaners and toys for our corn and soybeans. The idea that we could lose some market as they enter a period of austerity is frightening to our traders.

Wheat futures

December Chicago wheat futures are getting back near recent lows, also. We are currently up five and a half cents at 5.17 1/4. The recent high was June 30 at 6.23 3/4. The low was Monday at 5.10 1/2. The previous low was 5.02 1/4, so that could be seen as support, but we are actually about on the support line that can be drawn between three successive higher lows of 4.85 3/4 on May 5, 4.93 3/4 on June 1, and 5.02 1/4 on June 19.

Market highs are normally seen late in June or early in July. If that is true, we just saw the high. If the crops stop improvement, however, or if they are still over-rated, this could be the year for late summer highs.

We could see improvement in soybean prices as the processors are starting to hunt for old crop beans. Imports from Brazil will keep this from getting critical, however.