One axiom in the grade trade is that big crops keep getting bigger. This does not necessarily mean that the crop improves, but that the reporting of the estimates of ultimate crop size changes. That is, each successive crop estimate gets bigger until we get to the January Inventory Report and the final reality puts the low in the market.
Crop progress has been slow, but catching up. As it does, the reports continue that the yields are better than expected. Enough is now harvested that the reality is here. As a result of the perception of crop size and of the pressure on the market of the hedging process, prices continue to slip lower. We are at three-year lows, and the end is in sight, but not yet realized.
Some years what we call hedge pressure is bad, simply because of a fast harvest. In this case, it is purely the size. As elevators sell futures to hedge the cash corn purchase, pressure is put on prices since there tends to be more selling interest than buying interest. Thus, the “hedge pressure” we talk about.
Corn charts follow this theory very closely. The December corn chart has been in a slow decline since the recent Aug. 26 high of 5.08 1/4. On Oct. 28 we put in the new low, at 4.30 1/4. In morning trade Oct. 29 we have slipped to a new low, at 4.29 1/4.
The soybean chart has differed, with gains during late summer as we worried about late dryness. Then, the market dipped as we started harvest, but cycled up and down as the harvest was slow. The last two weeks we have actually rallied, but Oct. 29 the prices broke almost 29 cents after a good weekend of harvest. Now we are trading 12.70 on Oct. 29, about eight cents above the recent harvest low of 12.61 3/4 November futures.
The different trends in corn and beans comes as the Commitment of Traders Report tells us that the specs are long beans, but short corn. This position lens support to beans, and contributes to corn being weak. Corn is not going to turn around as long as the elevators are selling and so are the speculators.
Traders will stop using November futures this week, as they go into delivery at the Chicago Board of Trade. Bids will switch to January.
Some traders have already made the switch, as the November beans have been higher than the January contract in recent days. This inverse is causing problems with hedgers, as it is telling them to sell cash beans now.
On Oct. 28 we saw the release of the weekly USDA Crop Progress Report. This showed that harvest was catching up to normal, although the weather reports currently show harvest will stop again this week.
The U.S. corn harvest is now at 59 percent, just off the 62 percent five-year average. That is up 20 percent from last week, but does not compare with last year’s early harvest of 91 percent by this time of the year. Ohio is lagging the rest of the country, at 49 percent, but that is slightly ahead of our 47 percent average. We gained 18 percent this week.
The soybeans are now 77 percent harvested in the country, 81 percent off in Ohio. The nation gained 14 percent this week, while Ohio only gained ten. The U.S. is right on track with the average, but Ohio is actually five percent ahead of normal.
As this is read, however, November is starting. We need a big push, but some of the lag in harvest progress is crop condition. Locally, farmers are taking off 18 and 19 percent beans in some cases to keep moving. Some corn is dry, but even some fairly early corn is still in the high 29’s of moisture. Call that a factor of the cool summer, cool temperatures and rain during the harvest so far.
I continue to tell farmers that holding beans is dangerous. They are actually a good price historically, and frequently decline in price after harvest.
This is not what farmers want to hear after the high prices of the last two years, but the crops are much larger, the prices are smaller, and that is the reality we are living with this marketing year.