The grain market is getting ugly

My pick for the most ugly news of the day is that we are into the harvest in Brazil.

Normally I think of that as a February event that drags into March. This morning, the CHS Hedging morning letter commented that the harvest is now 3 percent complete. So much for the idea that we still had a little time for a bounce before we had to deal with the reality of another huge new crop of soybeans in the world.

In modern times, this South American harvest has been the limit on bullish moves in our hemisphere, and add 2015 to the list of stalled markets.

It remains to be seen just how big the big crop is, with some thought that the hot and dry weather in northern Brazil will hurt the average.

AgRural, a Brazilian consulting company, put out a smaller crop production estimate recently, because of this, but current weather conditions in southern Brazil have been so good that they may make up the difference, according to other observers.

Cycling lower

Soybeans have been somewhere between “on the defensive” and a “disaster” recently. There has been a pattern for several months that the cycle highs are getting lower.

Now we have a low that is $1.22 1/2 off the contract high for March futures, as we hit 9.67 1/4 on the 23rd. We have bounced to 9.83 3/4 on this Tuesday morning, Jan. 27, but that is only up a quarter-cent for the day.

Looking at the pattern of lower highs, we have March futures at 10.89 3/4 on the 12th of November, 10.59 3/4 on Nov. 26, 10.66 on Dec. 10, 10.68 1/4 on the 29th, and 10.61 1/2 on Jan. 12.

This tells us that any bullish return would struggle to get through the 10.60’s, which has now become the overhead resistance.

Corn futures

March corn futures, meanwhile, continue in a bearish pattern. Prices are consolidating into a flag formation, where the daily range is getting smaller as the highs get lower. The lows are consistently around 3.82.

Consistent losses earlier took us from the end of year 4.17 March futures to a low the 14th of 3.76. That was followed by a bounce to 3.92 1/2, but there has been no follow-through.

This Tuesday morning we are just under 3.85, up 3/4 of a cent.

Waiting game

The next big fundamental, potentially market-changing news does not come until March 31, when USDA releases the annual Prospective Plantings Report.

You will be hearing a lot about this until it actually gets here. So far thinking is that corn acres will be sharply cut in favor of beans. This may account for some of the bearishness of the bean markets currently.

We have to get through the stretched-out Brazilian and Argentine harvests, then we get planting estimates.

Wheat market

Wheat continues on the path downward. The hard wheat market have made new contract lows. Chicago wheat is creeping lower, but is still 40 cents off the Sept. 25 low at 4.80.

For wheat, the story is good winter conditions and a large worldwide supply. We have not had the kind of sub-zero weather in the Plains that kills the crop off, and we are currently adding to snow cover that protects the crop.

Ukraine is still exporting wheat, even in the political mess there. Other exporting countries have good supplies.

So, little good news to report that would indicate higher grain prices.

Getting ugly

The phones are not ringing off the hook with these prices. The farmers that call are talking about production costs and the raise in real estate taxes. We knew when we had high prices that the year would come when the costs did not go down as much as the grain prices did.

Now we are there, and it is ugly.