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Is everyone getting bullish right at harvest?

Agriculture.com Staff 09/21/2006 @ 8:29am

Grains rallied this week in an unlikely scenario, right in front of corn and soybean harvest. This has sparked many market analysts to state that the harvest lows are in, even though harvest hasn't even started yet in many areas.

Anticipated demand for corn for ethanol has long been given credit for helping the corn market strengthen, but doing so in front of harvest of a near record large crop is surprising to say the least. Gains seem to be coming from commercial demand for the Dec futures, as nearby futures are gaining on distant futures.

Are commercials seeing the value of buying cash corn at harvest and storing it? While producers have been looking at 40-50c/year carries in the corn market and calculating out their profit's from storage (from 15-30c), no one expected commercials to be buying the Dec futures with the same plan. But it makes sense to fill up all capacity at harvest, which is typically the lowest basis of the year. Add the carry in futures markets and you've got a nice profit for every bushel stored. And the security commercials get from having the physical product they need is also nice.

Once weather improves for corn harvest, can the market continue to rally with 11 billion bushels of grain coming in? This seems to be the million dollar question. Usually, the one surprise left at the end of the year is when the combines pull into fields, and the first field harvested shows a yield that is either surprisingly good (like 10-20 bu better than expected) or surprisingly bad (like 10-20 bu worse than expected).

This is one thing that yield models and crop conditions cannot predict, and only the farmer riding in his combine (collectively across the country) knows this. So far, we haven't heard much from the Corn Belt, but we suspect that some areas may find some disappointing yields due to the heat/pollination problems. But ,this is the wild card in the corn market, as most other info is known. Sometimes, crop conditions late in the year tip this hat, as if conditions improve once harvest begins. It means the yields are better than expected. If they drop, it's worse than expected. So far, in Sept., conditions have continued to improve, but not much has been harvested.

Wheat came to life Tuesday as the Australian ABARE dropped their production estimate to 16.5 mmt, down from USDA's last estimate of 19.5 mmt and last year's crop size of 24.5 mmt. Southern Australia will get some rain this coming week, but the majority of the wheat growing area will still remain dry (although temps won't be as hot). Australia has a long planting season, but it's generally accepted that September and October are very important weather months for their crop. For now, it looks like Australia will have a very poor crop. Odd thing, so far, is that US exports are not stellar in wheat, making the rally look somewhat questionable. However, the expectation is that US exports will expand rapidly the last half of the year (once FSU countries run out of wheat).

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