Grain market prices defensive going into the end-of-year reports


Grain prices are at or near lows on all three major commodities on the Chicago Board of Trade.

Markets have been defensive waiting for the USDA Crop Production Report and Dec. 1 Grain Stocks report, which will be released Friday morning. In addition we can blame the pathetic exports, especially of corn and wheat, although the soybean exports have perked up.

A look at the futures quote pages reminds us that the market is not enthusiastic about the future, either.

Looking at ‘inverses.’

We now have inverses in corn and soybean markets. We had a carry in the corn to May for awhile, but now that is gone again.

“Inverse” is a technical term that compares the price of the lead contract with the contracts that are more deferred. In the case of corn and beans, we have each successive futures contract valued at less than the proceeding one. That means that the market is estimating that the value of the commodity will get smaller, not bigger, with time.

That goes against history, as the futures market normally has some “carry” to pay for storing corn for the future.

The January 11th reports are significant because the Crop Production number is considered the “inventory report,” which is to say if is more than an estimate and represents close to a count of bushels. There is no real count of all bushels, but this comes close.

A surprise here can shake the market, and the market needs shaking.

Will USDA, traders agree?

The average trader estimates going into the report see a corn crop of 10.626 billion bushels on a 122.4 bpa. Traders think carryout, the corn left at the end of the summer, will be at 667 million bushels.

At the same time, traders are guessing USDA for soybeans to come in with a 2.999 billion-bushel crop on 39.6 bpa. The carry will be 135 million according to the traders.

So, the guessing game is, will USDA and the traders agree?

Look for nothing big to happen if the numbers do not agree, but anything can happen.

The Grain Stocks numbers are where the most uncertainty lies. The drought-induced early harvest nationally relieved the shortage of soybeans and corn, and may have distorted the December stocks.

If the early harvest was used essentially at the end of last year to get us through tight supplies, we could be surprised by the stocks being lower than thought. However, exports have been so slow that the two probably correct each other.

The trade thinks we had 8.21 billion bushels of corn and 1.984 billion bushels of beans as of Dec. 1. If this is not what USDA reports, there is room for price change.

Market reactions

Looking at price trends, March corn futures have drifted down from a high the end of November at 7.67 1/2 to a low Monday of 6.78. That is most of a buck, although we closed well off the high Monday, and on Tuesday in early trading are at 6.86 3/4.

The soybeans put the low in the middle of November, which is no surprise at the end of harvest. The rally took us to a high in the middle of December of 15.01 1/4 on the March contract.. Then, we dropped to the low last Friday at 13.97 1/4.

In other words, we gained nearly a buck and a half, then lost a buck in round numbers.

South America

This is the time of the year when interest is focused on South American weather. It has been rainy in spots, but the weather is now considered OK. It is getting dry in northern Brazil, but is too wet in Argentina. Yield estimates are all over the map, and will be critical.

The official Brazilian estimate comes out this week. They had said the crop was at 82.6 million metric tons. One private consultant was at 83.11, but the resident expert for one of our hedging advisers puts the crop at only 80 mmt. The 80 number is a market changer if it is right.

In other news, the River will be navigable through January, which will drop freight and help prices. We have been struggling with water levels.


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