Market analyst: Still falling

Ray Grabanski
Special to the Farm Forum
Columnist

Last Thursday, we saw $1.20 in soybean losses (the biggest daily loss ever), and huge losses in other grains as well.

We have been saying for weeks that the market seemed intent on dropping, even when there was no news — essentially taking the bubble out of the grain prices we added last winter and early spring. In one day last Thursday, we erased three to four months of soy price gains in one day.

Now, one could argue the premiums we had in grains to start the 2021 year are almost gone.

While the big prices are gone, the growing 2021 crop that had such a great start (early planting into good moisture) has slowly deteriorated over the past three weeks, with spring wheat nosediving in crop ratings the most.

Corn and soybeans also are suffering nationally, with a three to four bushels per acre decline in corn the past few weeks, and one bushel per acre decline in soybeans.

Essentially, that means we've gone from an above average crop in corn/soybeans to below average in just a few weeks in the same week that prices dropped sharply.  Two bushel per acre losses in corn per week mean 180 million bushels of lost production with only 1.1 billion carryout projected.  A 1 bu/acre losses in soybeans is 90 mb with only 150 million bushels carryout.

So while prices are dropping, the risk of shortages in the 2021 crop year are rising. The western corn belt has the greatest risk, including North Dakota, South Dakota, Minnesota, Colorado and Nebraska. These states have little moisture going into July and August when we typically use stored soil moisture, i.e. moisture not present in 2021.

Weather forecasts continue to suggest cool/wet weather for the eastern/southern two-thirds of the Corn Belt, but warm/dry for the western/northern one-third of the Corn Belt.

Today, the remaining rain system across the U.S. is leaving the eastern seaboard, with no real organized system coming through the Corn Belt like we typically do every three days in summer. That leaves a void in rainfall; however, the forecast is for improved rain changes in the central and eastern Corn Belt, enough to keep yield potential high. But the parched western/northern Corn Belt will see further deterioration in crop yield potential.

Crop conditions from June 21 emphasize the point that southern areas are doing great (improvements in winter wheat (+1%), cotton (+7%), peanuts (+4%)conditions) and declines in corn (-3%), soybeans (-2%), oats (-3%), barley (-6%), and especially spring wheat (-10%) conditions.

Soil moisture levels also rapidly deteriorated last week, with subsoil -4% adequate/surplus and topsoil -7%, which are large losses. These are quite large declines in soil moisture as well as for spring wheat, barley, and corn condition ratings in one week.  

The Pro Ag yield models declined 0.62 bushels per acre in corn (another 50 million bushels lost), and in the first full data soybean yield model indicates a 48.6 bushel per acre yield potential, 1.2 bushels per acre below 'trend' . That's 108 million bushels less production potential.

When subtracted from our anemic carryout levels, that leaves almost no ending stocks, so this is a critical time for the crop. We had better get the rains forecast the next two weeks, or the crop will be in a dire condition. Markets are spiking lower Tuesday morning after a stronger opening, but the proof will be in whether we actually change our dry/warm weather pattern, or just continue to not get rains that are forecast to fall.

The market is at a bit of a crossroads; will we get the rain to revive the yield potential of the 2021 crop? Or will we continue to decline in yield potential, just like our soil moisture situation is suggesting is likely to happen when the crop water needs surpass the normal precipitation that falls. There just simply is no stored soil moisture left in western/northern areas, so yield losses will be determined solely by the rainfall that falls versus the crop demands. And typically in the West, normal rainfall does not equal crop needs during July and August. So without excessive rainfall, further deterioration is likely. 

To be quite honest, if the crop continues to deteriorate, rains continue to be elusive, and prices keep dropping, Pro Ag will be recommending buying call options to protect our considerably profitable and substantial sales for the 2020 through 2024 crop marketing years.  Because when things were too good to be true and prices were overheated, we were aggressive sellers.  Now that prices have dropped considerably and crops have deteriorated, it would be silly not to at least buy some call option protection at cheap cost to protect these great sales. After all, that's what risk management is all about.

Ray Grabanski can be reached at raygrabanski@progressiveag.com.