Grain markets continued bullish action on the Chicago Board of Trade last week. Nearby March corn futures gained 193⁄4 cents, close to the 20-cent gain of the week before. Soybeans have now gained over a dollar in the last two weeks.
The corn futures high was made the last day of January at $6.421⁄2. The contract then tanked, closing down a dime for the day.
The soybean futures, however, have remained strong. New highs in old and new crop soybeans were made the morning of Feb. 1. The March futures traded through another magic number, getting to $15.02 briefly. We were most recently trading at $14.991⁄2, but that is still up eight and three-quarters cents.
November soybean futures have also traded at a new high, at $13.731⁄4. We were most recently two cents below that, but still up over a nickel.
In the case of corn, we have finally peaked above the old March futures high made clear back in early May, at $6.401⁄2.
In the case of soybeans, we were making big strides above the old highs in both old and new crop. The old November futures high was $13.133⁄4 June 7. We have gained almost 60 cents since then. The old March futures high was the same day at $14.451⁄2, so we have gained 561⁄2 cents since then.
The strength of the soybean futures had been predicated mostly on dry weather in southern Brazil and in Argentina. In fact, there has been significant rain in the last few days in those dry areas, but the market has continued to rally.
The fundamentals of this rally lean toward the idea that the coverage, at maybe 50% in Argentina and less in Brazil, is not complete; the damage is already done, and current forecast are not for continued rain. The fact that the rally continues in the face of actual rain, however, is significant. This is a rally that the market clearly wants to see continue.
The corn rally is different in that it so far has just managed to make new highs, and then the March futures, especially, dipped sharply. This is a market that is looking for a top and sees a sell-off at a marginally new high.
There are fundamental reasons for the corn price rise. We have seen strong exports and good livestock margins, and money seems to be moving from a stalled Wall Street into commodity markets.
China continues to take delivery on previous contracts, encouraging observers that they will finish executing on their commitments. In addition, we saw sales to our neighbors, which now include not just Canada and Mexico, but others in Central and South America.
The ethanol industry continues to absorb corn at a near–record pace, even though margins have declined.
The wheat markets continue to see a shakeout following this year’s horrible spring wheat production. The Minneapolis spring wheat market lost 62 cents last week, while the hard red winter wheat market of Kansas City was unchanged and the Chicago soft red winter market was actually up 15 cents.
Traders seem to be adjusting to the shortage of spring wheat and are evening up the values between markets.
We are now into February and still in that dangerous winter period when we are short of news that moves markets. The news we wait for is centered around the end of March U.S. Department of Agriculture planting intentions report, and then early spring weather.
Current prices would encourage corn planting except for the ugly truth that input costs are so high that $6 wheat futures does not mean we will have big net margins in the country.
Farmers have every reason to switch acres to the high-flying beans. Hidden in this scenario is the demand for acres from the small grains, where crops like oats have had record prices and low production costs compared to corn or soybeans.
This is the time of year when we talk about economic reasons for switching acres, and the prospects of doing so. The reality is that the switch is not easy for most farmers, who tend to be locked into a given rotation. The talk appeals more to economists than farmers.
So, we wait to see what is ahead, and anticipate new highs in commodity prices as we wait.
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