Reality sets in?

Farm Forum

11/04/14 — Grains have had a very nice counter seasonal rally, during harvest of what is expected to be a record-shattering crop in 2014. That was a nice, unexpected surprise for growers who need to make sales at harvest. With the large crop, it might be difficult to find a place to store the last bit of harvest, as storage space might get to be a limiting factor as we approach the end of harvest.

Some private estimates of the crop size are starting to come in, with F.C. Stone estimates a large 178 bu/acre corn crop and 48.4 bu/acre soybean crop. These are well above USDA’s 47.1 bu/acre soybean estimate in October, and also above the corn October estimate of 174.2 bu/acre corn. That is pressuring grains today, and if accurate would mean larger carryover estimates for the November USDA report. There will be more private estimates out this week, and the USDA report will come early next week. That could pressure prices into the coming week as the recent rally seems to have swallowed the smaller October numbers as being gospel (with some reports of even smaller numbers due to disappointing yields in some northern growing regions.)

Weekly crop progress numbers out yesterday showed corn at 65% harvested, advancing 19% last week and compared to average of 73% harvested. Soybeans are 83% harvested, now equal to the average of 83% harvested and advanced 13% last week. Winter wheat is 90% planted vs. 89% average, and 77% emerged vs. 72% average so that crop is developing well. Ratings remain at 59% rated G/E, slightly below last year’s 63% but also above average for this time. Sunflowers are 50% harvested vs. 54% last year at this time, advancing 20% last week. Sugarbeet harvest is nearly complete now.

Weather forecasts show it turning wetter for the southern plains and Delta the next week, with that rain to spread to the central Corn Belt and southeast in the 8-14 day forecast. Temps remain above normal in the west for the next 7 days, but below normal in the central and eastern Corn Belt. The 8-14 day forecast turns seasonably cooler as well, as after all we are into November. This could make the remaining harvest more difficult in the eastern Corn Belt as they finish up their harvest in the coming weeks.

SAM weather shows continued improvement in rainfall amounts in Brazil as you go from the next 7 day forecast to the 8-14 day, especially the northern regions where planting was delayed due to the late arrival of the spring rains. However, planting is going much better now that the rains have arrived and can germinate the planted soybeans. Perhaps double cropped acreage won’t be cut as much as feared? Temps are also moderating to more normal levels in SAM.

Weekly export shipments of soybeans were outstanding at over 100 mb last week, but very poor for corn and wheat. The strong demand for Asian protein seems to be fighting the large U.S. crop numbers for control of the market. Soybeans lost value last night and yesterday in spite of the record large export shipments as private crop estimates start rolling in again for the November report. Pro Ag expects the corn and soybean numbers to rise again in this report due to the large yields in the southern half of the Corn Belt.

Grains might be at the end of their recent rally, with corn and soybeans running into resistance on charts and fundamentally could struggle as the U.S. is harvesting a record large crop of corn and soybeans. Hedgers may want to make catch up sales in soybeans by selling cash grain at $10.50 November/January futures or higher, but in corn by selling a storage hedge (selling July futures at $4.05 or higher). Prices might have rallied beyond where the fundamentals can support them, with a record large crop on the way of corn and soybeans. Due to the rally occurring early, 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.

It will be interesting to see private crop estimates this week, and the USDA report in November, as well. Will they support the rally by reducing ending stocks significantly? If not, perhaps prices have gotten ahead of themselves?