Chewing on the small green apple market

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There are two main challenges to writing about grain markets today. First, to remember to thank God for making small green apples and, second, to overcome the fact that the monthly United States Department of Agriculture Supply and Demand Report comes out after I write this, and anything can happen as a result.

Bounce

The small green apples are a byproduct of a small rally off what we hope were the bottoms of soybean and corn prices. A nice, fat Granny Smith would have been great, but we will take the small bounce with gratitude.

July corn futures gained almost three cents May 11, but lost most of a penny in early May 12 trading. We are now trading just under 3.18, but that is nicely above the 3.09 of April 21. We spurted to 3.31 on April 23, but got back within a quarter-cent of the low again on April 29. July soybean futures, meanwhile, bottomed at 8.18-1/2 on April 21, but were at 8.55 for a close May 11.

Overestimated

The USDA reports come as the market is assuming that USDA is still showing a balance sheet for grains that have too much grain in them. Traders talk about the 97 million acres of corn that USDA predicted the end of March as if it is a pipedream. Farmers are not talking like they are increasing acres of corn by seven million acres, and wholesale fertilizer prices have tanked with a lack of demand.   

Earlier, the fear of fertilizer shortages was being discussed, as the huge increase in acres and some fertilizer exports for price reasons left us thinking that we could not import enough fertilizer fast enough. Now the crop is two-thirds planted, and no one is worrying about fertilizer.

We have long discussed the concept that last year’s crops are significantly overestimated. We continue to expect the USDA to make small corrections in the size of grain stocks and usage to adjust to this reality. We also expect usage to be higher than anticipated as the lower test weights of the late-planted crop result in poorer feed conversion and lower ethanol yield per bushel.

Market reaction

It remains to be seen what the government actually puts in the report, although the corn acres are probably baked in until the June report. What matters is the market reaction. Some expect a knee-jerk drop in prices, but hope for a quick afternoon rebound.

Critical is that prices hold above support. A drop under the recent lows will do technical damage to a chart that is already reeling from production numbers and the COVID-19 market collapse.

Ahead of schedule

May 11 saw the first significant USDA Crop Progress Report. Cold, rainy weather has affected planting in some areas, but the country as a whole is ahead of schedule on corn and soybean planting. I credit most of that not to good weather, but to farmers determined to get a run on planting after the mess of last year. Sleep has been optional in some communities that have seen the entire crops planted in just a few days.

Locally, the drive to plant was expressed by a farmer who was running a corn planter just an hour after the overnight snow cover melted off May 9. Northeast Ohio has been wet enough to keep planters parked, with most farmers only getting started May 7 or so. Some fields have been pushed, with tillage tractors leaving a hundred yards of mud in the road as they left the fields. You know who you are.

The USDA reports that 67% of the corn was planted in the country as of May 10. That compares with just 38% at this time last year, and is ahead of the 56% five-year average. Ohio is on pace, having 33% of the corn in, up from just 10% last week, 3% last year, and the 36% average.

USDA has the soybeans for the country at 38% planted. That is a gain of 15% in a week and is 30% ahead of where we were last year at this time. The average is 23%. Ohio lags the nation, but is well ahead of average pace. At this time, we normally have 14% of the beans planted, but by the evening of May 10, we were at 24%, a gain of 14% for the week.

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