Seasonal grain market slump continues

Prices continued lower on the Chicago Board of Trade this week.

The decline was especially dramatic in the corn markets, where we fell out of the trading range on Wednesday, then continued lower on Thursday. When trading resumed Thursday evening, prices had recovered on the March corn futures by 4 cents, but the damage for the week was done.

Until the bounce Thursday night, we had lost 34 1/4 cents in four days.

In early trading Friday, we are back above 7.00 on the March contract, up most of a nickel. If you look back longer, it is even worse. The recent high was on November 11th at 7.67 1/2. By the low made Thursday, we had lost 80 cents in three weeks.

Soybeans

January soybeans are a little different. There we have been on an upturn for the month. The recent high was made Monday at 15.08 3/4 on the January soybean contract. This came after a steady upturn that had lasted since the low of 14.09 1/4 posted back on Nov. 16.

After that Monday high we drifted lower and closed down just a quarter-cent for the day. Tuesday, however, we lost over 30 cents. Wednesday we lost 29 cents. We were down another 28 1/4 cents by the close Thursday. That put us down $1.06 for the four days.

A few hours into the late session we were up a nickel, and are now trading 14.21, up 12 1/4 early Friday morning.

The conclusion is still bad, however. Regardless of the end-of-week bump, we rallied a buck in a month, and lost a buck in less than a week.

And the reasons are…

There are a lot of reasons we have traded lower. Some are valid, some are the kind of reasons analysts give when they have to give reasons.

The big real reason I discussed last week. Exports have been way behind the expected pace, especially in corn. The corn total now has us 52 percent behind the exports this time last year. The soybeans are fighting off the effects of exports that were announced to China, but now China is canceling them.

The fear is that the business is just going to South America.

In the “clutching at straws” category, we have other items. Talk is about the current winter storm returning moisture to the soil and relieving our widespread drought. Talk is about the river levels limiting barge shipment and making loads smaller. Both lower grain prices.

Drop in ethanol use

Then, we have the scary talk. Talk that the ethanol margins are poor and that we will use enough less corn in ethanol production this year to change the supply and demand tables.

Ethanol has become the “Third Rail” of corn use. It has provided the power in the market, much like the third rail in a subway line. We have ramped up production to meet the demand, and have ramped up prices to create the first really rosy market of my lifetime.

The fear has been in the background that a move to green politics could limit ethanol because segments of the population believe it is wrong to put food into cars, and wrong to price the starving out of food.

Now a bigger fear is just that the economics of ethanol production are not working. The demand for corn creates prices that make the ethanol too expensive, which makes the demand go away.

Stay tuned on this one. Ethanol has become a mature market, and may not be permanent.