Grains struggling, markets slow

by Ray Grabanski
Special to the Farm Forum

02/07/17 — Grains have been struggling as of late, with South American production starting to come online with expectations that Brazil is about 10% harvested with their production. Weather has been relatively good in Brazil, with private estimates of crop size increasing recently with the cool and mostly normal precip weather they have enjoyed. Argentina has also had some improvement in weather, with a period of dryness after their heavy rains caused some flooding in early January. Now, weather has returned to a more normal pattern, with normal rainfall and normal to above normal temps. This has not been a threatening forecast for South America thus far this growing season.

So in spite of continued strong exports, prices have drifted sideways to lower recently. This week’s export weekly export inspections were good once again at 60.1 mb soybeans, 43.8 mb corn, and 22.7 mb wheat so really the exports are continuing their strong pace. But exports alone can’t push grains higher, as the growing crop in the fields of South America may be providing more direction than the pace of U.S. exports right now.

South American (SAM) weather forecasts have changed little from yesterday, still forecasting for the next 2 weeks normal to above normal precip forecast for virtually of Argentina and Brazil, which will help grains to fill as we finish out this growing season. But it also could hinder harvest in northern Brazil, which has begun. Temps will remain below average in Brazil and normal to above normal in Argentina, a very consistent pattern this growing season for SAM. This forecast is likely to lead to more production for SAM, with Brazil production expected to be hiked in this week’s USDA report.

After the recent bounce higher in grains, we could see another setback and test of the recent lows. We would buy back half of previous hedges if we dropped to $10.01 (next support in soybeans), and target another setback to buy back the rest of the 2016 hedges. For March corn, we could drop to next support at $3.49 March futures, where we would buy back half of 2016 hedges. $5.44 March Mnpls wheat is still a good place to put long positions on in the wheat market.

WE believe winter is still a good time to buy grains after we’ve depressed them with the big crops we produced in 2016. Record large crop yields generally produce low prices, and that is just what we have received in the winter of 2016-17.

But as we said last week, once we turn everyone bearish, the corn market will have to deal with a loss of anywhere from 4-6 million or more acres from last year for 2017. Then, yields are unlikely to be 175 bushels/acre again in 2017 like they hit for a record shattering yield in 2016. Instead, trend yields are more like 170 bu/acre, and the same can be said about U.S. soybean yields as they are unlikely to hit 52 bu/acre when trend yields are 47.5 bu/acre.

As we get into the end of March the acreage intentions report will shock us back to reality (especially in corn, where significant acreage is likely to be lost). The focus will then turn from large old crop stocks to the new possibilities of 2017 (which includes a possibility of below ‘trend’ yield crops in the major grains as well). Can you say “weather premium?” It’s likely we’ll hear that phrase a lot as we enter into spring. And as it typical, the best sales opportunities for farmers might come in late spring/early summer (especially for corn and wheat).

Yes, hope springs eternal as we head into spring, and while the back and forth of the market may seem frustrating right now in its range bound type trade, it may only have a few months left of this type of trade. Then spring will work its magic again, and farmers may yet have an opportunity to sell something at a profit.