Rain makes corn, corn makes risky (Grain Marketing)
(Editor’s note: Rob Davis is a market advisor with Nagel Farm Service.)
During the growing season it rarely seems like everyone gets a nice drink out of the same storm — it usually just misses your farm! Those are the ones that hurt the most and the ones that you remember.
Thankfully we’ve received a couple crucial rains across the region recently that should help most farmers avoid a disastrous drought for their corn crop. Unfortunately for some, it brought some high winds near my office in Wye Mills, Md., that laid a good bit of corn on its side.
If this happened to you, please touch base with your crop insurance agent. It’s a good idea to be talking with your agent on a regular basis during the growing season.
Some corn is beginning to tassel and pollenate locally, which is usually the last hurdle that traders want to get over before moving the probability of a production issue to the back burner. This rally has moved the December corn contract from a low of $3.22 on June 26, up to a high of $3.63 on July 7. The technical analysts are pointing to a few indicators that suggest upside potential to $3.75. I wouldn’t wait around trying to squeeze another 15 cent out, when the risk of running back to the lows in September is significant. That is 30 cents of downside risk from here, and I hope that we don’t test the $3 low set by the front month contract back in April, that would be over 50 cents lower than the price today.
I don’t mean to rain on anyone’s parade — I’m trying to keep farmers from wanting to break out the corn whiskey come harvest time.
If you are feeling more confident about producing a corn crop this year, I would recommend making some moves now to price or protect the price on those additional bushels. As John Hall mentioned last week, a record reduction in the USDA Acreage Report last week helped reduce the expectations for the massive oversupply, but we are still nowhere near having tight supplies — we are essentially back to where we started — looking at a very comfortable 15 percent stocks to use ratio.
I’d like to hear some good arguments for why the market could rally… outside of a natural disaster, I have trouble coming up with a scenario that moves prices higher. I’d like to think that China will step up their buying as they have just recently returned as a buyer of US corn earlier this year. But I would not be willing to bet on them moving markets higher. The Chinese included a couple very telling statements in the trade agreement about not disrupting relationships with existing suppliers and buying based on market conditions. I would be willing to bet on the American farmer growing a crop this year, even if we have unfavorable weather conditions over the next two weeks.
On July 9th, the September corn contract closed at $3.48 ¾ and the December corn contract closed at $3.57. At the current levels, our corn is about 30 cents more expensive than corn out of South America. In my opinion we should be selling corn now for this year and at the same time, look at getting some sold for next year as well, there is opportunity to get a structured contract pricing in the $4 ballpark.
On July 9, the August soybean contract closed at $8.96 1/2 and the November contract closed at $9.01 1/2. Soybeans continue to be a bright spot in the grain markets, at least from a fundamental perspective. We are below that magic 10-percent stocks-to-use ratio, but the reaction in the market seems unimpressive as the November contract has meandered from $8.50 to $9. I believe that that pace will accelerate as soybean buyers tend be relatively short sighted with their purchases, getting coverage only a few months ahead of delivery.
On July 9, the September wheat contract closed at $5.25 and the July 2021 wheat contract closed at $5.36 3/4. One analyst that I respect and listen to often is Gordy Linn, and he always says that you have to watch out when trading wheat as it can be a “streaker.” That’s a good word to describe the action recently as the September contract has gone streaking from $4.70 to $5.30 in two weeks, without a significant change in the fundamentals..
(Rob Davis can be contacted at Rob@nagelgrain.com or 410-822-6300. Nagel Farm Service has been serving farmers since 1946 and offers Grain Merchandising, Crop Insurance and Risk & Profit Consulting services throughout the Mid-Atlantic region).