The lure of the weather market

Delayed planting across the country has led to a weather market, and that is dangerous for farmers and traders alike.

The job of the traders on the Chicago Board of Trade is to anticipate prices. That involves speculating on trends, and usually results in over-reaction.

So, here we are. It is the first of May. Very little corn is planted. The forecast is for 10 days of wet and cool weather. Corn futures have gone back to the high after five good days of gains, if you ignore the spike on April 9.

Now, the money question. Do we go higher?

Did we over-react?

This has not been a huge market gainer the last couple of weeks as everyone in the market has been looking ahead. We are on the contract highs, or near. Are we already over-reacting, or is this the start of something big?

I tend to be conservative about these things, and caution that the market needs to be sold on the way up, and we are going up. This would indicate that we are in a real catch-up opportunity for old corn, and the new crop needs to have some commitments, also.

This is not a market that is right now worried that the crop size will be crushed, just that it could be hurt. We have no real demand increase, just the possibility of a supply decrease.

Look at history, and you have to choose between recent and past.

As I was talking with a farmer this morning, when he and I were growing up, delayed planting could lead to a disaster because we took a month to plant the crops. Now, the corn can be planted in 10 days, and most will be planted in the space of a week if the farmers can get a couple of short nights to sleep. This time of year sleep can be put off until December.

Remember last year?

If you look at recent history, you only have to go back to last year. The corn planting was finished in the first week of June and we still raised a huge crop. The weather cooperated and the genetics came through in a way Dekalb XL45 never could in 1975.

Right now, I suspect that the traders in Chicago are not actually over-reacting. They are looking at last year and still expecting us to make a crop.

Prices have worked back up to the highs as they anticipate some acreage change or yield change, but they are not now looking for disaster.

The tendency of the farmers is to expect disaster, and to hope that two things happen. One, that the disaster misses them, and, two, that it causes a huge price gain.

In the process, they shut off old crop sales, using the excuse that they have to see the new corn growing before they sell the old. This makes some sense if they are feeding cows, but not if the job is to hit the market with cash corn.

Any progress?

So, what are the numbers we have seen this week? Ohio has planted 4 percent of the corn acres, which is better than the soggy year 2013, which was only 2 percent at this year.

The U.S. was reported Monday at 19 percent planted, which was even less than the 21 percent average trade guess. Normal is 28 percent.

The average for next week is 42 percent, and we will never get close to catching up. Given the weather forecast, we will be lucky to gain much at all, let alone catch up.

Ethanol news

The good news in the corn business comes from the ethanol industry. They are not looking to increase capacity, but they are seeing the highest gross margins in history.

In the news today was the fact that an ethanol plant in Virginia that was built in 2010, but never opened, is now running.

This is a reflection of margins. At the peak of the corn prices, there were ethanol plants for sale that some industry observers said could not return a margin if they were bought for nothing.

One reflection on the current corn demand is that we have reversed the old crop/new crop spreads. Old corn was valued less than the new crop. Now that is reversed.

On Feb. 28, for example, December corn futures were worth four and a quarter cents more than July futures. Now the December is worth 4 cents less. This might change again as the planting delay continues.

Beans gaining

The soybeans are, of course, subject to the planting delays also. In this day, many plant beans as early as corn. In addition, we run the risk of switching late corn acres to soybeans.

The old crop beans have continued to gain on the new, partly as a result of acreage increase fears, and partly as a reflection of the tightness of old crop supplies.

Since the low on March 12, the July bean futures have gained $1.70 low to high. The November futures have gained $1.02 since the February 28 low.

It is notable that we made a new contract high on November soybean futures this (Tuesday) morning at 12.49 1/4. The July futures high was all the way up at 15.21 the middle of April. As of this morning we are back up to 15.07 1/2, up seven and a half for the day so far.

Wheat continues to cycle at high prices, with the cycle highs getting a little lower. We were 7.25 1/4 for July futures the end of March, then made a low of 6.63-3/4 on April 11.

The 16th, we were back to 7.18 1/4, but down to 6.69 on the 22nd. The recent high is today at 7.11 1/2.