Deciding whether weather is still a major factor (Grain Marketing)
(Editor’s note: John Hall is a professional commodities analyst.)
The current market commentary is focused on the weather. Did the recent heat effect pollination? Has there been sufficient moisture? What is the five-day forecast? Last week I had a chance to travel around northern Delmarva into Delaware and north. I saw several irrigators going and I assume several of these were fertigating.
The crops I saw looked great. I saw some wet spots that were bare, but the over-all crop color was great. During my drive I was impressed how fast some of the late corn had caught up. Having said that, there will be a wide pollination window for the corn crop this year. I am sure some varieties will be affected by the current heat at pollination. The weather certainly makes interesting conversation this time of year.
USDA does weekly surveys to address the crop progress during the growing season. Often times these reports can cause market movements. When I was with Extension, I had to complete a weekly report that addressed the crops in my area. The crop progress reports are released every Monday. In the report released on July 15, the U.S. corn crop was rated 58 percent Good to Excellent, GTE , up a point from last week, but well behind the five year average of 71 for this time. The soybean crop was rated 54 percent. The five year average for beans for this week is 67.2. Hard red spring wheat was rated at 76 percent. Winter wheat harvesting was at 57 percent complete.
Crop progress reflects current crop conditions. Crop condition is certainly a factor on yield. Acreage times yield give us production. After the wet spring in the Midwest acreage was the question.
Two weeks ago I mentioned the June 28 USDA acreage report is being redone. Rob mentioned it again last week. The acreage report was a nationwide producer survey conducted in the first two weeks of June when there was still significant land unplanted. This year’s survey covered 68,100 producers.
USDA also did about 9,000 separate physical surveys for this report. As you know, in this June 28 report, USDA increased corn acres back to what was originally projected and reduced bean acres by 4 million acres from the originally projection in February.
I am at a loss to what happened in the acreage report. USDA employees are very smart statisticians that pride themselves in crunching numbers and obtaining the correct outcomes. They do not benefit from a certain outcome. Regardless, USDA sent out another survey in July and will release an updated acreage report that will be included in the August USDA Supply and Demand report scheduled to be released the second week of August.
How high will corn go? What will be the new acreage total in the August report? My crystal ball is not any clearer than anyone else at this time. Early this spring I thought there would be a reduction in corn acres and an increase in bean acres due to input costs.
I suggest we focus our attention on what we do know at this time. I want to draw your attention to the graph of the December corn futures price captured July 17. This graph shows the historical price of the December futures going clear back to April. The graph shows that the first market rally began about the 10th of May. Managed money got involved with the markets when there was news about planting delays. This news caused the markets to limit up. You will note that the December futures increased from the $3.80 range up to the $4.42 range then leveled off. The futures contract then rallied on June 11, when USDA suggested a 2.5 milling acre reduction in corn acres. You can also see that the futures price dropped to the $4.30 range when USDA released its June 28 acreage report and took acres back up again.
You also need to understand basis. Basis reflects how much the local demand varies from the Chicago price. If the region has good demand for feed or industrial use, basis will be positive. The Mid Atlantic often has a positive basis with the broiler industry on Delmarva, the livestock and poultry areas near Lancaster, plus the animal industry in the Shenandoah Valley.
The key thing left to the growers is to call the end user to get the cash price they are paying. (Cash price equals futures price plus/minus basis).
Cash price will vary from end user to end user depending on how much demand and inventory they have at the time. You must take the time to call around. Do not feel that you are intruding. End users expect farmers to call them. You may miss 10-15 cents if you are too lazy to call.
So what can we expect prices for corn to be? It appears the December futures is suggesting resistance at the $4.60 level. A basis of 20 to 25 cents is not uncommon which suggest a cash price of $4.80 or so. However, if we look at the futures chart and feel a 25 cent basis is doable, you can see that $4.40 plus 25 or $4.60 plus appears to be a good objective at this moment. Can prices go lower? Study the chart! I do not want to bet against today’s hybrids!
The successful marketer does not need to sell at the high. The successful marketer tries to sell the entire crop in the top third of the market.
(Note: I research material from Allendale, DTN, USDA, University Land Grants and other credible sources in compiling this article. It is not merely my opinion, but rather a consensus of experts in the trade. Looking for a marketing coach or someone to discuss strategies with? Contact me at firstname.lastname@example.org, or call 410-708-8781.)
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