I’ll give you the good news first since I have been hearing complaints about how negative this column has gotten. I have heard from readers recently, and they are not impressed. The fact that I am trying to tell it like it is, unfortunately, has been overlooked.
One reader said that my piece two weeks ago which discussed famous authors and “Our Winter of Discontent” only got to the actual market news in the last few paragraphs. He was right. Another complained about the negativity in my views last week. He was also correct.
But, there is good news. The good news currently is that we exported 1.3 MMT of corn the week that ended Feb. 8. That is a 12-week high for exports. That also represents a high level for the export season so far. We are now at 17.9 MMT of corn exported since Aug. 31, and that is a 31% bounce from the same period last year.
Now, the bad news. The only reason I see to explain the bounce in exports is that prices are so low buyers are bargain hunting!
Corn
The result is another sad commentary on current grain markets. Yes, we have made new contract lows for March corn futures, at $4.15 on Feb. 16. How low can we go? That remains to be seen.
Not long ago, we were talking of corn prices near $4.40, and what a disaster it would be to go lower. Now we are 25 cents lower, and advisors are looking for ways to recommend “panic selling” without using that term.
After a positive market for the morning of Feb. 16, we closed the March contract 12 1/2 cents lower for the week. The December new crop contract lost 9 cents for the week.
The low prices come as the big spec funds continue to add to short positions, pressuring prices. The fundamentals support the price drops, as the current U.S. Department of Agriculture numbers suggest a carryout at the end of the year of 2.532 billion bushels. That is the biggest leftover in several years, going back to the 1987-88 crop year. That carryout is a bump of 360 million bushels from last year.
The USDA Outlook Meeting last week put out the idea that U.S. farmers will decrease corn acres to 91 million. Remember, our carryout will “only” be 2.5+ billion bushels if we do actually reduce the acres. With that carryout, USDA says our average farm price will be below $4.40 a bushel. That would be okay if this were still 1987.
Soybeans
There is an argument that soybeans have not been as weak as corn. Soybean futures gained Feb. 16 from 7 1/4 to 10 1/4, depending upon the contract. Unfortunately, we still lost 11 cents for the week.
The spec funds added to their shorts in both corn and soybeans. In corn, the funds got to 16,600 contracts short, just 7,900 from the record short position. In soybeans, we see the funds now 134,000 contracts short.
The market needs to see reasons to work out of those shorts, and that will not be easy. The best way would be for a surprise in acres, whether in the Projected Plantings Report at the end of March, or later, after planting conditions reflect a new reality or when actual planted acres come as a surprise compared to the projected ones.
As it stands, the Outlook Forum expects corn to switch to soybeans in a 1:1 ratio. That is, the total acres would remain the same. That means that any surprise, be it in March or May, is a mixed blessing. It will help one crop and hurt the other.
In corn, any negativity could be offset by a much smaller Brazilian total crop (first and second planting). Brazilian agencies are estimating the crops off by more than 10%, and that is more than USDA’s assumptions.
Wheat
The Chicago wheat prices are perhaps the weakest of the three commodities right now. There are no uncertainties about crop size since this is a winter crop. The hope for this market may come from the French production, which is in peril.
Currently, 68% of their crop is rated good to excellent. That compares to 93% last year at this time but is steady for the last two weeks. That is to say, the crop is nowhere as good as last year, but the conditions have not declined recently.
Chicago cookie wheat futures lost from 6 1/2 to 8 1/2 cents last week, depending on the month. In the case of wheat, however, the spec funds are lightening up on short positions.
They have ridden this market down from the March futures high in early December at 6.49 1/2 to the mid-January low of 5.56 3/4. Maybe wheat is the first market to blink.
In any case, the outlook is bleak right now. I am struggling to find reasons why the market could go up, but I am not expecting it to.
When it does eventually go up, we will look back and identify a reason or reasons it did, but until then, we have paid the price to still have grain in the bin, and now is the time that being stubborn about holding longer is a reality, but not necessarily a bad choice if we are, in fact, finding a bottom. If not now, when and where?
