After the excitement of all the different weather markets and the influence of the Ukraine War on markets, prices are settling into a predictable and unexciting pattern. It is the middle of August now, and with soybeans a little ahead of normal in development, the last gasp of the weather market is coming to a close.
August, the most critical month for soybean production, has come with rain, and with little expectation of soybean stress. The result is predictable. Last week corn and soybeans traded in a sideways pattern that indicated that market movers were satisfied with prices where they were.
We are reaching an equilibrium between the demand for grain and the current prices. Corn remains at what any farmer would see as cheap prices. Soybeans have arguably been higher, but not as high as the last couple of years would have indicated, and not as high as producers had hoped. I suspect there were not many bushels priced yet, as hopes were for $14 and $15 soybeans, and those hopes are fading as fast as the pods are filling.
Soybeans predictably had the last gasp at high prices in late July. Large areas of the Midwest were still dry or getting just-in-time rains. The critical August period was ahead. November soybean futures on the Chicago Board of Trade reached $14.35 on July 24. Now we know the stress is not going to happen in most areas. We are trading $1.50 lower than that, and there is no good reason to be higher. In fact, November futures are off seven cents in early trading this Tuesday morning as this is written, at 13.19. Yuck!
Last week soybeans traded in a fairly wide range, but for little gain. We were as low as $12.82 1/4 on Aug. 8 before we got as high as $13.38 on Aug. 11. That would feel like we gained, but, in fact, the close the Friday before was at $13.33 1/4, so we saw movement, but not much real gain in a week.
Similarly, corn futures traded in a sideways pattern, changing only a couple of net cents. If we look at the December futures close Aug. 4 compared to the close Aug. 11, we were actually down a dime, to $4.87-1/4. Most of the loss, nine cents, was on that Friday.
We will look back at this year and conclude that the markets followed the seasonality we should expect. That is, normally our highest corn prices come in late June or occasionally early July, on weather worries. In fact, our December corn futures high was June 21, at $6.29 3/4. We then had a horrible break to the $4.81 3/4 low on July 12.
Similarly, we normally have the soybean high also in late June, although we can blow that out of the water with August weather problems. This year we had rumors of problems, and then the problems seemed to go away. Now that we can look back, the high was July 24, at $14.35, in anticipation of August problems. As the rains came, we put in a low of 12.82 1/4 on Aug 8. It would seem the party is over.
The good news for soybeans is that we have bounced back 55 cents. The other good news is that you can probably stop worrying about your beans. Good crops are more important than good prices, which normally come with poor crops. It is ugly to think that we tend to hope for good crops in a year when other farmers get poor ones.
Chicago wheat futures took significant losses also at the end of July. This came as the reality of a huge cookie wheat harvest was in. This was the year of the haves and the have-nots. The Eastern soft wheat crop was the best in my memory. The Great Plains hard wheat crop struggled to grow out of the dust in the fall and winter and then fought off harvest rains to get a poor crop in the bin.
The spring wheat from the Northern Plains is actually turning out a little better than expected, but is not a huge market factor, except that it helps counter the winter wheat disappointments of crop size.
It was exciting to see Chicago December wheat futures at $7.96 1/4 July 25. Unfortunately, that came mostly as a reaction to the Plains wheat problems. When we returned to trading our huge crop of soft red winter wheat, we have declined rapidly to our current (Aug. 15) price of $6.34 3/4, down almost seven cents for the day so far.
A farmer call from Wooster yesterday reminds me that we need to pause to review what I will call Ag Econ 302. Specifically, I try to always make notice that I am talking in terms of Chicago futures prices. This is a universal reference point for everyone. Your local cash price will vary off that depending upon where you are and what the demand is for your grain. That difference between your local price and the futures price is what we call “basis.”
For example, if Centerra in Mansfield is bidding “-.58” November futures for harvest, that means they are “58 cents under” November futures. I spent a few decades of a previous life trading what we called “cross country” grain. That is, I bought it in one place, then transported and sold it in another.
The trick to that is to keep a mental map of where grain comes through and where it needs to go. For example, corn at elevators in Northwest Ohio tend to go on rail to the Southeast to feed mills processing it into chicken and hog feed.
If a farmer is close to delivery points at elevators on the Illinois River, the price there will be close to the futures prices, since the futures contracts are actually written based on delivery at specific points on the Illinois River. (They used to be based on delivery to Chicago.) This assumes that a major amount of grain goes to New Orleans for export. Prices of NOLA (northern Louisiana) grain thus tends to be the value on the Illinois River plus barge freight to New Orleans.
If you are in Eastern Ohio, markets are dominated by the value of grain going to the ethanol plant in Clearfield, Pennsylvania. Their price tends to be maxed out by the value of corn in Mansfield, plus rail freight. If they are getting enough farmer corn from eastern Ohio and Western Pennsylvania, they will be paying significantly less than that rail replacement.
There is also a huge feed demand in Central Pennsylvania. for the chicken business, so their prices reflect the supply on Pennsylvania farms. In most years, the feed mills have to pay enough to get it from Ohio past the ethanol plant. If you are in Western Ohio, prices tend to be based on values at the ethanol plants in that region.
In the soybean business, we mostly have what we call “processor markets.” That is, the best value for soybeans is what they are worth at soybean processors in Bellevue or Fostoria, or other destination depending upon what you are close to.
In the past, soybeans were more export markets. That is, the best value was frequently what it was worth delivered to a river elevator in Toledo for shipment on water vessel to Rotterdam. Farmers near Ohio River ports of East Liverpool or Cincinnati are still using export markets.
All of these commercial market are basing their prices on the Chicago Board prices, with appropriate “basis” adjustments. Thus, in the grain business, for purposes of universal understanding we just refer to futures prices.
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