Grain prices perky without good reason

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(Farm and Dairy file photo)

(Scroll down to see a video from a soybean harvest in Wayne County, Ohio.)

Prices were perky Monday, Oct. 6, on the Chicago Board of Trade. It was the kind of perky that you feel on a -10 degree morning when the Carhartts feel a little stiff, but not with mud, and your face burns from the wind. You have that rosy glow of wind burn, but it is still cold.

Ask traders why prices jumped Monday and the answers are varied. The honest answer, from my boss in Ashland, was, “I don’t know.”

Read the trade papers and there are always answers.

CHS Hedging said it was a weaker U.S. dollar, in tandem with a weather-delayed harvest and short covering. But then, they have to give a reason.

That makes sense, if you believe that the price slide will stop some time. You can always look back and claim to see a reason, after the fact. While it is going on, reasons are a little harder to commit to.

Still, the idea that farmers are slow to sell cheap corn, and the idea that the harvest is slow are easy to hang your hat on. Phones are not ringing in cash grain trading offices across the Midwest, and when farmers get together, they talk about why they did not sell $4.50 corn when they had the chance.

The reason is simple — it seemed so cheap after $8 corn. Don’t beat yourself up about it. It was a bad decision for good reasons.

Awaiting report

The big fundamental market mover that may or may not affect prices is the USDA Crop Production Report that comes out Friday. The trade is anticipating big yields for corn and soybeans, although there is disagreement about how may corn acres may be reported.

Remember that the spring was wet in the Northwest, and there are lingering ideas that we have been assuming as much as a half-million too many planted acres.

Early guesses put the corn yield at 172 to 178.4 bpa. If we take the high end of the 81.6 to 84.4 million acres, a huge difference, we end up with a crop over 15 billion bushels. The fear of this crop is what has led to the current December futures price.

We started October with a low of 3.18 1/4. We worked a little higher after that, then bounced over 9 cents Monday to hit a high of 3.32 3/4. This is a nice rebound, even if we are now trading on Tuesday morning at 3.31 1/4, down 1 1/4 for the day so far.

The short covering comes as futures traders who have been short the market worry that the decline may be over if USDA surprise us Friday. So, they bought futures back Monday, sparking the small rally. Their fear is our gain.

What if USDA comes in with planted acres at the low end of the trade guess? What if the yield is at the low end? Our cool summer would make it seem our yields would be less than last year. Of course, 10 degrees too cool here was just right for the acres in the West that tend to suffer from too much heat in August.

So, do the math again. If we take 81.6 million acres and 172 bpa, we get a crop of just over 14 billion bushels. Believe me, if the report was anywhere near this, the rally is on!

The soybeans are a similar deal. The trade thinks the planted acres may be down a half-million acres, but they expect USDA to raise the yield a bushel to 47.6. Traders expect 3.976 billion bushels.

Call that four billion versus the last USDA report of 3.913. Call that three billion, and you see that the market has pushed prices down by anticipating a huge crop, much bigger than the last USDA estimate.

If there is a surprise, it will be in a smaller-than-expected USDA soybean production number to go along with the smaller-than-expected corn number.

Slow harvest

Harvest has, in fact been slow, as confirmed by USDA Monday. As of Sunday night, they see the U.S. corn harvest at 17 percent, but the average is 32. Ohio is at 12 percent, a gain of 5 percent this week. However, we lag the U.S., and our average is 18 percent.

Ohio is 21 percent harvested in soybeans, one percent ahead of the nation. We gained 12 percent just last week, but have not made progress since then, and the weather is not promising this week.

The U.S. average harvest is 35 percent, so what feels slow is slow. Two years ago we were 53 percent done soybeans now, and the corn was 65 percent done.

We continue to have lingering concerns that the frost will kill the corn crop before it is mature, and that we will see test weight problems.

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Marlin Clark is an associate of Russell Consulting Group, with a local office in Williamsfield, Ohio. Comments are welcome at 440-363-1803.

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