Survivor’s guilt: Markets turn around after Iowa

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corn field in a storm

If you are a farmer in Iowa, you know what bad news looks like. It looks like 100-mile-an-hour winds over an area two counties wide, the width of Iowa. It looks like corn bent and broken, with shredded leaves. In some places, it looks like corn torn out of the ground. It looks like empty grain bills pulled loose from anchor bolts and rolled into fields. It looks like hopes and dreams rolled up with them.

Derecho

They called it a “Derecho,” a rare storm featuring winds over a large area, in one direction. I had to look it up online. The explanation made my eyes glaze over, not having a master’s degree in meteorology. Let’s just say it happens under certain rare circumstances, but often enough to have its own name. Hope that it never comes to a town near you.

The actual results of this storm remain undefined. News services reported 10 million acres of crops were affected. One government agency has put the number at 37.7 million acres. Local farmers say the area of real damage is much less than that, especially since the soybeans were not badly damaged in most areas, just the corn.

Dramatic results

The result on the grain markets was dramatic. The storm came just after U.S. Department of Agriculture released its August supply and demand report Aug. 12, which included the latest estimates of crop production. USDA raised corn yields by three bpa, to 181.8 bpa. The soybean yields were raised 3.5 bpa, to 53.3.

The reaction from the increased corn production was that the December corn futures dropped to the old low of $3.20. It then bounced off support and closed higher. After being slightly lower Aug. 14, December futures gained five and a half cents Aug. 17 to a $3.433⁄4 high and a $3.431⁄2 close. That closed a gap that went back to July 10. As this is being written Aug. 18, we are at $3.441⁄2.

November soybeans made the recent low Aug. 10 at $8.651⁄2. Rallies after the report got us to $9.163⁄4 for a high Aug. 17, and a close at $9.16. As this is written Aug. 18, we are one and three-quarters lower at $9.131⁄2. These are the highest prices for November soybean futures since the March 5 high of $9.22. So, bad news for Iowa farmers, with damage also to some Nebraska and Illinois farmers, was good news for those who missed the storm.

Markets are confused

I am experiencing a little survivor’s guilt, but at the moment I am looking at markets. Those markets were actually confused before the storm dominated thinking. At the same time we got news of higher production from USDA, we saw the first numbers for prevented planting. That was reported at 8.9 million acres of all crops, with 5.375 million acres of corn.

This jibes with what farmers have been saying, especially those from the Dakotas. There the few dry days of spring were spent dragging combines out of the mud as they harvested the crops that stood in the field all winter. Then, it got wetter again, and the planting stopped.

One would think that the prevented acres would be a shock to the market, but with a little thinking came the realization that this was why the government had previously used satellite imagery to change the planted corn estimate from 97 million acres to 92 million acres. Thus, the smaller acreage was already “in the market.”

Other market factors causing some head-scratching were reports of corn production problems in China, and reports of Chinese purchases of corn.

The market right now is concentrating on storm losses and will do the usual job of overreacting until the facts are known. Thus, this is a sales opportunity for soybeans at a decent price and corn at a better price, if you can close your eyes and wince.

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