Futures vs. cash prices: who wins war?

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Cornrows by Angie Garrett (Own work) [CC BY-SA 3.0 (https://www.flickr.com/photos/smoorenburg/3682186902)], via Flickr

Grain futures markets are conflicted these days.

Prices are volatile, and mostly at the bottom of the recent range of trading. At the same time, any farmer looking out the window knows the prices are higher than what the market is giving.

There are good crops here and there, and the crops that were planted anywhere near on time have improved dramatically in the last month.

It is sadly humorous that analysts that were talking about the wet weather for two months are now worried that it has not rained much for the last month in many areas. The improving crop needs a great month of August to get it to the finish line. Soybean, especially, need some help.

Holding on

Farmers are currently holding tight to grain, and cash buyers are having trouble sourcing their needs. Farmers want to see a crop now, before they sell the one they are storing.

They think prices are too cheap for the conditions and fear a frost could require the good grain in the bin for blending stocks. Not to mention, the soft and light crop that could be coming.

Cash traders and futures traders are at odds. Basis is record-high over most of the Midwest as a reflection of demand and stubborn farmers.

Some ethanol plants are closing for lack of corn supplies. Corn is 80 cents over the Board in Columbus, according to reports, bid at +65 in Clearfield, Pennsylvania, at the ethanol plant, and much higher than that at central Pennsylvania feed mills.

Standoff

When cash prices and futures prices are diverging this much, one, or both of them, is wrong. Call this the battle of the technicians and the fundamentalists.

In this case, no Bible quoting is involved, just quotes on the board of trade. The technicians study the charts and predict prices. The fundamentalists study supply and demand tables, and try to predict carry-out based on private views of a crop size much smaller than Uncle Sugar reports.

Recent trading has been dominated by computer-set stops that buy and sell off the technical signals.

Meanwhile, the talk of people in the cash grain business is all about late and prevented planting, and the small crop that the official government numbers do not yet reflect. Cash people think the futures are out of whack.

While this battle goes on, prices are bouncing on support lines and some sellers are thinking of moving a little, so as to not miss what used to be a good thing.

Roller coaster

We finally got $4 corn, but then, it felt cheap. Now prices are weak, and we worry we will miss the $4 corn while waiting for $5.

Soybean futures are just below $9, and there is still a little in the bin, but the crop makes the farmer think about $10 — and, if we get to $10, he will think of $11.

The morning of July 30, December corn futures are trading at $4.223⁄4. This is 2 cents above the recent low of July 1.

Critical status

We are at a critical juncture. A week ago, it felt like we could fall through December, then we rallied a little. Now, we are back knocking at a door none of us want to enter.

Just weeks ago, we were at almost $4.65, and we thought we were off to the races. Now, we are pulling up lame.

Similarly, the soybeans are back below $8.90, after going above $9.36 just weeks ago. We were almost $9.50 a month before that.

Why the drop, while the crops are poor? Blame it on the recent good weather. Traders in Chicago are focusing on the seasonal trend to make prices go lower in July as crops get better. They have gotten better.

Wait and see

The fact that the cash people think the crops will end up small is not being traded, as long as U.S. Department of Agriculture does not confirm it. The agency will not do that until the September reports.

That will be the first time we see prevented corn acres reflected, as they are still shown as planted.

That is how the government comes up with 91.7 million planted acres.

The September report will also report actual field reporting, done in August.

So, the war will continue until the fundamentalists start to dominate in the middle of September — if I am right. It’s your money. It’s my “if.”

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