Market Monitor: Whoa, Baby, Hot! Hot! Hot!


One of our family stories involves number one son in a restaurant tasting his soup. The attractive girl going by our table was surprised to hear a 12-year old blurt out, “Whoa, Baby, Hot! Hot!”

I thought of that yesterday as I watched the attractive corn prices go by my screen. I have to admit to surprise checking the overnight trading and seeing a quote over $5.23 per bushel. Whoa, Baby! Hot! Hot!

Breaking $5

The speculation for the last few days and the last thirty cents has been if we could break $5. When we got to 4.70, we were looking for a break, but the market watchers were speculating that we could go to 5 just because it was there and we were close. So, we made a run at the $5 and hit it overnight going into Monday. We not only got there, but we got a little momentum, maybe from hitting buy stops set by speculative traders, and spurted nearly 25 cents higher.

So, now we are looking for direction. The magic number has been hit. Last week the idea was that we could touch it, then crash lower. Yesterday the talk was that we could go right to $5.50 with the momentum we had. In fact, early trading took the overnight prices lower. By the end of the day we closed down a nickel. The overnight into Tuesday as this is written is not quite even, at 5.07-3/4 December Chicago futures.

At the same time, soybean futures were also higher on the overnight going into Monday. We gained over 66 cents from the Thursday low of 10.33 November futures to the Sunday/Monday overnight high at 10.99-1/2. For all intents and purposes that is the staggering target of eleven dollar beans, and represents an on-farm price of ten dollars or so—maybe more, depending how close the producer is to a processor.

Since the high we have drifted lower, but still posted a high overnight going into Tuesday of over 10.93 November and a close before the day session of 10.86-1/4. We are up not quite two cents as we wait for the open.

Not this season

This action on the grain markets defines what we call a “contra-seasonal” market. That is, the seasonal history is that prices decline going into harvest, but we are seeing improvement. The reasons for this continue to be the same as we have discussed for the last few weeks. First, the market is not convinced that USDA’s record corn crop is actually there. Second, the market sees exciting demand in worldwide markets.

Demand from Europe has been the dominant feature of those who say the market is now demand-driven and not supply-driven. We are shipping corn east to replace the feed grains that were not grown in drought-ravaged Russia and Ukraine. The exports that the FSU would normally push into Europe are going to come from us instead.

Hidden factor

Hidden in the demand picture is another factor that may be driving prices. The rumor abounds that this week Ag Secretary Vilsack will announce E-15. That is, blenders will be allowed to sell gasoline that is 15 percent ethanol instead of ten percent. It remains to be seen if this is just a rumor, although the ethanol people have been promoting it for a couple of years, ever since they got enough capacity to get to ten percent in all gasoline. It also remains to be seen if it is a cause of the current rally.

While futures prices are moving higher, basis is dropping as a reaction, and as we make the transition to new crop. Silos are full of high moisture corn, and combines are turning out corn in the low 20’s in our area. Bean harvest is in full swing. Yields are what have been expected. That is, there is huge variance between farms. I am hearing of 77 bpa beans, but beans that are only 18 inches high from moisture stress only a couple of miles away.

Rule of thumb

So, the trend remains unknown, and prices are volatile. The rule of thumb is, the high price at harvest is the high price for the year.


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