The past few months have shown those in the grain business that this is a tough year, and current prices were not going to pencil out profits for this year. There was a time when the doom and gloom was mostly about corn and soybeans, but in the last few days, the worst news has come in wheat markets.
Chicago July wheat futures fell 14 cents April 28, to $5.31 The low of the day came at $5.27 1/4, which is a new contract low. No immediate hope shows on the nearby chart, either.
If you get out a straight edge and hold it up to your computer chart, the last few cycle highs of $6.32 1/4 on Feb. 19, $5.91 1/2 on March 14 and $5.71 on April 2 hit the edge almost perfectly. This defines a downtrend, with the market currently trading $5.33 1/2. Ugly! And, that is including the 2-1/2-cent bump up April 28.
Wheat
We are now going into May, and the winter factors that help wheat prices are now gone. Remember, much of the trading in our soft red winter wheat this time of year is strongly influenced by the conditions of the hard red winter wheat grown in the southern and central Plains.
The freeze scare there came and went with little real damage. The worry about late planting and poor emergence of the wheat there is now gone. The dry weather is being erased this week as much of the southern Plains is expecting up to 3 inches of rain off another big system like we have seen several times this winter.
The mood of the market from here is to assume perfect weather and a big crop. With the harvest normally starting in southern Texas this week, most things that could surprise the market are now not a factor.
Yes, we could stay dry. Yes, we could get wet at harvest and get hurt with abandoned crops or areas with reduced protein and increased disease problems. Don’t bet the farm on it.
Corn and soybeans
Compared to wheat, the corn and soybean markets are looking good. They are not good, but they are better than wheat and more interesting right now. The market is primed to believe that we are planting huge acres of corn and reduced acres of soybeans. The current (April 28) U.S. Department of Agriculture Crop Progress Report would seem to confirm this.
Traders were expecting that the government report would show that 25% of the corn is now planted. The actual report showed 24%, which is the same for our purposes.
The corn planted is mostly in the ‘I’ states and the southern states that are part of the 18-state report. Ohio is only reporting 8%, but that is 2% above the five-year average.
The nation is also ahead on soybean planting. The U.S. is now at 18%, well ahead of the 12% average. Being ahead of time is seen as positive to yields and negative to prices.
The next big benchmark is the idea that 75% of the corn should be planted by May 15.
If that happens, or if we exceed that planting rate, the report will reinforce this idea that the crops are going to be huge.
And yet, there are positive things that can happen. On the internet currently, there are two articles speculating on circumstances that could give us $15 corn and $5 or better corn. In addition, Farm Futures has a piece that just looks at statistics and makes the case that, in the last 17 years, we had a 91-cent rally on the average through the summer months.
Likely these are attention-getting pieces written to grab the eye of the farmer who wants to believe in them. Yet, there are reasons to believe.
In the case of soybeans, the Chinese have bought more this year than last. Unfortunately, most of the origins are in South America. And, we still believe that Brazil, for example, had a record bean crop.
Still, if exports improve around the world, and cheap grain prices encourage increased exports, the big production could be absorbed by bigger exports.
Rate of exchange
Importers have reasons to buy American crops because of the current rate of exchange. While the dollar versus the “dollar index” has been fairly steady, the value against the Euro, which is over 50% of the weight of the index, has been declining. The dollar index, started for trading in 1974, is currently very close to par. That is, the dollar is worth 99.28 cents compared to the index currencies.
It is a different matter with the euro. We are getting cheaper right now against the euro. We have been close to 93 cents this year, but are currently at about 88 cents.
This means that our exports, at least any that are being priced against the Euro, are getting cheaper.
If you are in Europe, buying soybeans into Rotterdam, the weaker dollar means that a euro can buy more soybeans than it would a couple of months ago.
There is some reason to believe that exports will end up being more than what USDA is projecting in their current balance sheet. If so, there is hope.
This is the kind of hope that is better focused on options than any play betting on the flat price. Farmers are optimists. The realists know that none of these positive market factors may come to fruition.
