Delayed harvest may mean stronger prices

Wet weather across the Midwest has generally stopped the harvest the last few days.

We are not getting government reports this week due to the political struggle in Washington, but the trade is estimating that the corn crop is 20 to 25 percent off now. That doubles the reported amount of last week, but continues well behind the normal pace of 33 percent.

The harvest delay has been the excuse needed to see prices perk up a little. Corn prices were modestly higher on the Chicago Board of Trade on Thursday, Friday and Monday. Early Tuesday trading has December corn futures off 2 1⁄4 cents at 4.47 after making a harvest low so far at 4.41 on the 2nd.

The soybeans have continued the small rally, if you can call it that, into this morning. On Tuesday early we show November soybean futures at 12.98 3⁄4, up two and a quarter. The low was on the first of October, at 12.63 1⁄2. That represented a drop of $1.36 in just over a month.

The corn prices come as the realization of a crop nearly 30 percent bigger than that of last year hits the market. The bean prices come after a long rally into harvest, as traders feared the crop was getting smaller with dry Western weather late.

No word from Washington

Normally we would now be anticipating a USDA Supply and Demand Report which would forecast usage for the new crop and predict the crop sizes. Thanks to the political turmoil, this report, due on Friday, is now indefinitely delayed.

The market hangs a lot on this last production estimate, so now we go through harvest blind, barring a sudden and unlikely compromise in Congress. Instead we have private forecasts, which so far do not give prices a lot of hope, at least for corn.

Any reasonable person has to think $12 soybeans is still a good price. Corn at under $4 is not a good price, but it is reality.

Private predictions

I am looking this morning at research from Country Hedging. They are predicting a crop of 87.3 million harvested acres that will average 156.4 bpa.

In contrast to ideas in some parts of the country that the crop will disappoint, they are actually raising their yield from the September USDA estimate of 155.3. They point to actual field counts made recently as the evidence of better-than-expected yields.

Do the math, and CHS expects a corn crop of 14.501 billion bushels, just off the September USDA estimate of 14.53 billion.

Ethanol use

Of major interest to farmers is their estimate, in agreement with USDA in the September report, that we will consume 4.9 billion of the bushels in ethanol production. This is an increase from the estimated 4.661 billion CHS says we will have used in ethanol this year.

Give credit to cheaper prices for the increase in usage. I have farmers suggest to me that the ethanol usage could be much higher because of the prices.

The problem with this is that the ethanol market is basically mature. We need a certain amount to meet the 10 percent requirement in gasoline. We are not going to see more production whatever the corn price, since the demand for it is not there.

When we reach full production in our ethanol industry, we build inventories of unsold ethanol and hurt prices.

Given the CHS production estimate, they expect a carryout at the end of the 2013/2014 marketing season to be 1.876 billion bushels.

This is the reason we will not see high prices. One billion bushels is the threshold for “tight” supply. Nearly twice that is very burdensome.

For comparison, we are now thought to have ended this year at 824 million of carryout. Note that this is a CHS number, and is well over the USDA September estimate of 661 million.

The picture is different for soybeans. There we expect a crop of 3.338 billion bushels, according to Country Hedging. That would result in ending stocks of 167 million. Anything under 200 million is “tight,” and this is why we have rallied this summer.

We now think we ended the year at 141 million bushels (CHS estimate). USDA said in September that we only would have 125. Either on is very tight.

So, if the weather hold we get back into the fields later in the week. A few days at this point will mean a lot of harvest.

Can’t plant wheat

Lost in the late harvest are the planted wheat acres. Look for the Midwest to have sharply reduced soft red winter wheat plantings. The trend has been to plant wheat after beans, and the beans are not off.