Post harvest blues

Farm Forum

11/21/16 — We are nearing completion of harvest of a record shattering yield for corn and soybeans, and this follows a record large yield of wheat as well (with winter wheat shattering previous records). That makes for a slow market typically, and fall of 2016 has been no different so far. While exports have been outstanding (both sales and shipments), especially for soybeans, we have a lot of product that we need to export this year. It will take a while to whittle down stocks enough to give a significant price rise.

In previous reports before the Nov. USDA report, when USDA hiked the yields in soybeans (which hiked production), they also hiked demand about 2/3’s of the yield increase, so that total ending stocks didn’t go up significantly. However, in the Nov. report that trend kind of reversed itself, as USDA hiked carryout significantly in that report. If that is a sign that USDA thinks demand might be faltering, that didn’t seem to affect the actual market (either the sales or shipments of soybeans), as exports continued strong.

So for now we have markets holding about steady to even slightly higher the past few weeks, as the large crop and record yields are offset somewhat by strong export demand for the time being. Once again, we can start to focus on the weather, only instead of US weather, now we need to focus on South America (SAM), which grows about half of the world’s soybean crop and a significant amount of corn for export.

South American (SAM) weather forecasts the next 7 days have put more precip into Argentina, which may pressure grains somewhat. However, the temps have warmed a bit in the 14 day forecast, and the 8-14 day forecast still has little precip in Argentina. Brazil seems to have plenty of precip forecast for northern and central Brazil, but still a bit below average in southern Brazil which is a bit of a concern. Brazil is well advanced in their planting progress, but Argentina is a bit behind their normal planting progress at this time.

US weather forecasts have turned a bit wetter in the next 14 days, with the 7 day wet in the northern belt, and the 8-14 day wet for the eastern corn belt. Temps remain above normal the next 7 days, although not as much above normal as earlier this month. We do cool seasonably in the 8-14 day forecast.

Already private forecasts are out for US acreage in 2017, with a significant hike in soybean acreage expected (4-5 million acres), and less corn (3-4 million acres) and wheat (1-3 million acres). That reflects the fact that soybeans were more profitable in 2016 than either corn or wheat. Prices in spring will have a lot to do with final acreage, though, as farmers make their decisions. The March 31 acreage report will be the first official guess by USDA of the actual acreage based on a survey. The Feb. USDA Annual Ag Outlook will be the first acreage numbers by USDA, but they will be based on models, not an actual survey of farmers.

We continue to target just above the old low in corn at about $3.19 Dec and $9.49 Jan. beans to remove current hedges. So far, the market has been supported above these levels by about 20c in corn and 40c in soybeans. Alternatively, if the market would rally significantly, Pro Ag would look to place some hedges in place as storage hedges on corn and soybeans (to wait until basis improves from the horrific levels of today). We also can start making sales of 2017 crop on a rally as well. So lets target $10.15 Nov17 to price the first 10% of 2017 soybeans. Also target $3.90 July corn for a storage hedge on 10% of remaining corn, and $10.45 Jan. beans for a storage hedge on 10% of remaining 2016 soybeans.

Between now and January, this is typically a slow time for the market after harvesting record large crops on a typical marketing year. We’d be surprised if any significant rally takes place now absent a South American weather problem. However, as we move into spring, we can start to expect more price movement as the uncertainty of a new crop year emerges (Will it be a big crop? Or a drought?). Possibilities are endless, and therefore the market has to reflect the latest weather development, and that means a chance for the market to rally with that uncertainty.