A dramatic decline in crop conditions in some parts of the country, coupled with positive trade news, has fueled a significant rally in corn and soybean prices recently. Corn futures are making new recent highs, while soybean futures, long stronger in price, are back near the recent highs.
The storm event known as the “derecho” brought hurricane-force winds without the hurricane across Iowa and some bordering areas. Last week in this space we speculated how much damage there really was. I suggested that the market would overreact, and that we needed to use it as a pricing opportunity.
Now it seems that the damage is on the high side of the estimates. Various parties have tried to estimate the damage, but the most influential was the U.S. Department of Agriculture crop condition report of Aug. 24.
In this, Iowa’s crop conditions lost nine percentage points in the good and excellent categories. This contributed to a loss of 5% in the ratings for the nation as a whole, a huge change. The soybeans, which were considered to not have damage to the extent of the corn, nevertheless were reported to have lost 3% in those good and excellent categories for the U.S.
Add to this the good news that our trade representatives talked on the phone with representatives of China recently. The Chinese confirmed that it is their goal to fulfill the so-called “Phase One” agreement. This comes after prices have lost ground so that the volume of trade, promised in dollars, would actually be even higher than originally assumed.
As a result of these two factors, but mostly because of the production problems, markets rallied sharply Aug. 25 on the Chicago Board of Trade. December corn futures were up six and a half cents in early trading, to $3.511⁄2. The high so far is $3.52, a new recent high. November soybean futures are up eight and a quarter cents to $9.14, with a high of $9.163⁄4. This gets us close to the $9.20 high of a few days ago. The damage in Iowa, Nebraska, Illinois and part of Indiana will continue to be analyzed.
I was party to a conference call Aug. 24 where some crop insurance adjusters said they had toured Iowa extensively, and confirmed widespread damage. They were not quantifying it until a few more days passed, and they could determine how much more corn would die instead of recovering with reduced yield. There was a report of a flyover that was startling for the extent of corn that had already turned brown as it died. Estimates last week were from 200 to 450 million bushels of corn production lost.
Before the crop damage, we were bouncing at $3.20 support on December corn futures. We touched $3.20 Aug. 4, 7 and 12. We have now rallied 32 cents above that, and have the highest price since July 10. It would now seem that we could still creep higher in price until there is more agreement about quantifying the damage.
It seems that the damage is likely on the high end of the range talked about last week, maybe 400 million bushels. Iowa is our number one corn-producing state, with over 13.5 million acres. Four of our top seven states are affected.
The soybean prices have followed the corn higher, but also have some production problems and good export news pushing prices. The same China phone calls are good for the soybeans. One negative is the report that China has taken 27% more beans out of Brazil this July than last July.
Part of this is the demand in China for soybeans. Part is that Chinese are expected to take a disproportionate amount of our soybeans at harvest when they are cheaper historically. Chicago wheat prices boomed up 25 cents last week, and there is no agreement why. Significantly, it was down nearly a dime Aug. 25, so we can continue to try to analyze this move, which may be strictly technical.
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