The grain market’s Big Bang Theory

The Big Bang Theory has been postulated by science to explain the origin of the universe. Some incredibly large explosion, according to this theory, started the ever-expanding nature of solar particles, including the one we are on. Some believe it happened by chance, an idea that requires more faith than believing that it was planned. Some don’t believe it at all.

In the commodity world, the Big Bang Theory says that, once we start to get some price movement to encourage cash sales, the market will explode with one bad day of trade that sets us back on our heels and makes us look for new direction or new reasons for higher prices.

(Don’t look this one up, as I just invented it. Of course, knowing the universe of Google, after this piece is published online, you might be able to Google “Big Bang” and get my opinion. And, of course, one it is published, it is true, right?)

The Big Bang hit our little piece of the world yesterday in the form of a huge drop in prices that was mostly unexpected. Cosmic events conspired to hurt prices. While we were looking around our insular world wondering what could help prices and thinking in terms of Supply and Demand, outside markets gave us a sucker punch.

The lead with the left was a major upward trade in the dollar. The right came out of nowhere while our heads were turned in the form of crude oil trading all the way down to $37.68 a barrel. We are now getting close to a price of a third the cost of oil last year.

While we were wondering what might be in Wednesday’s USDA Crop Production and Supply and Demand reports, bigger matters were making them irrelevant, at least for a day.

Market reaction

Look at December corn futures. We did not have a key reversal, since the high was not higher than the previous day’s high, but the low was lower. Not a big deal, since we are a penny higher this Tuesday morning, but a shock to the system nevertheless. If USDA does not hurt us tomorrow we can bounce back. We are still higher than what we have been since Nov. 10.

Then there is the January soybean futures contract. We actually made a high Monday at 9.09 3/4, then traded as low as 8.81 1/4. That is a range of 28 1/2 cents, the biggest day in a long time. We closed down 23 1/4 cents, and wiped out three good days of gains. We are still well above the recent low of 8.44 1/4, but we had been making a run at the harvest high of 9.23 1/2 Oct. 14.

Wheat, meanwhile, was more of a non-event, except that we stalled a little three-day rally off the bottom. On the Dec. 2, we touched 4.51 1/4 before trading higher. We touched 4.52 on the 3rd, but closed at 4.64-3/4 after a high of 4.69. Monday we hit a high of 4.74 3/4, but closed at 4.70 1/4 with the pressure from the other markets.

Silver linings

There was good news to be had, if you looked. Corn exports last week were 19.4 mbu, a fairly high number. However, we are still 193 mbu behind the projected export pace. Soybean exports were on the high end of expectations, at 63.2 mbu. Wheat exports ere disappointing, at 8.3 mbu instead of the expected 7 to 15 mbu.

So, maybe we need some sort of surprise in the USDA reports of help us out. With prices lower going into the report, we can maybe multiply the results of any small surprise. So far, the trade is expecting no change in the crop production numbers. This may be partly because the harvest was done so early, so we have gotten a good idea of production already.

Traders are focusing on the carryout numbers. Corn carryout for 2015-2016, this crop year, was 1.76 bbu. We are expecting the report to increase that to 1.768, which is a little negative to prices, but already in the market. We expect a bean carry of 462 mbu, slightly lower than the November number of 465 mbu. After the drop yesterday, there may be room to move here.

Elsewhere

It should be noted that the Brazilian crop is still behind in planting. The farmers there are at 88 percent planted, versus 94 percent average. The earlier areas are setting pods, so weather in the north and the south are both critical right now. Remember, beans there, unlike here, are planted over a huge latitude.