Do you believe in second chances?

Farm Forum

Harvest continues to advance, with corn 31% harvested and soybeans 70% harvested, but prices continue to rise in October while we are harvesting what still appears to be a record shattering large crop (175 bu/acre corn and 48 bu/acre soybeans?). We’ve rallied $1 or more in soybeans and $.50 or more in corn since October began – a great performance by the grains considering harvest yields have been impressive, especially in the southern half of the United States. The southern Corn Belt has record shattering large yields, and even though the northern Corn Belt has some disappointing areas, it’s still likely to result in a record large crop of corn and soybeans. The key question now is, how much of a record crop? Is the 174 bu corn and 47.1 bu/acre soybean yield estimates in October the highest we will see this year? Or will yields go even higher in the November and January crop reports (which typically happens in a large crop year).

Do you believe in second chances? If so, this might be an opportunity to sell grains (corn in a storage hedge, beans perhaps more straight up sales) If this is just a rally in an otherwise bearish market situation. After all, 400 mb carryout in soybeans and 2 billion bushel carryout in corn is not a bullish situation. In fact, one could ask just how far prices can continue to rise under this bearish scenario? Perhaps a 5 straight day rally without a setback would top this market? And then if production numbers rise in November and January, we might set prices back to reality?

Or is demand going to be strong enough for grains that no matter how much soybeans we produce, China will buy it anyway? And corn demand might also surprise as it did last year, with demand turning out much better than earlier USDA forecasts. Much might depend upon SAM, with Brazil right now delayed in planting due to the late arrival of spring rains in that country which delays planting/germination of soybeans. How South American production ends up in 2015 might determine whether this is a second chance to sell, or the beginning of a bull market that would last this winter.

Current weather forecasts show some rain in the eastern Corn Belt the next 7 days that will delay harvest somewhat, but much of the rest of the Corn Belt will enjoy warm and dry conditions (especially in the western Corn Belt). The 8-14 day forecast calls for more precip in the east, but mostly dry weather elsewhere. SAM weather shows continued rains in central/southern Brazil and Argentina, with just far northern Brazil continuing the drier than normal pattern for the next 2 weeks. That essentially lets Brazil get on with planting, but they have some catching up to do to get back to near normal planting progress.

U.S. crops continue to progress behind normal, with corn harvest at 46% complete vs. 65% normally (with 15% harvested last week). Corn maturity is at 96% mature vs. 97% normally, with conditions unchanged at 74% rated G/E (the highest since 1994). Soybean harvest is 70% complete vs. 76% normally, with 17% harvested last week. With harvest over 50% complete, there are no more ratings issued for soybeans.

It would have been nice to have grains form a low at harvest (when insurance prices were determined), and then rally from there. Instead, it appears we are seeing a counter seasonal rally now, and prices will probably languish in this area and stay in a range that will not allow any significant rally to occur this winter. (Instead the rally has already occurred during harvest). That might limit demand for now, and we might be doomed to languish in the area of $10.50 to $8.50 the rest of the winter for soybeans, and $3.20-$4 for corn as well. The upside will remain limited due to the large stocks of corn and soybeans left as we harvest what is a record large crop. So rallies to the top of this range might be selling opportunities (our “second chance”).

It will be interesting to see private crop estimates later this week and into next week, and the USDA report in November as well. (Will they support the rally by reducing ending stocks significantly?)