The grain market is saying......
CHICAGO, Illinois--Aside from Wednesday's price-supportive talk of China issuing corn import licenses, the markets have some analysts seeing corn sell signal delays going forward. Â
The latest USDA Stocks Report showing larger world soybean and wheat supplies than estimated put a wet blanket on a weak market. Though world corn stocks are tight, the U.S. farmers are expected to seed a record crop in 2010.
So, what is the market telling farmers to do with their crops that are either still in the bin or in the seedbag?
Brian Basting, Advance Trading market analyst, says the structure of the corn futures market is indeed encouraging farmers to store their corn.
"For example, the spread from May to July corn futures is 11.5 cents, or 99.5% of full carry utilizing the prime interest rate. What we are strongly encouraging farmers to do, however, is establish downside price protection on unsold corn and wait for the basis to strengthen."
One way farmers can accomplish that is to purchase a July put option, Basting says. Or, selling July corn futures to establish a storage hedge is an alternative. Also, a call option could also be purchased in conjunction with this strategy to provide more upside potential, Basting says.
"Regardless, we are hearing that there is still a substantial percentage of 2009 corn that has yet to be priced in the country. With last week's USDA reports casting a mostly bearish light on corn, farmers should establish downside protection on '09 crop and focus efforts on pricing expected '10 production," Basting says.
John Roach, Roach Ag Marketing Ltd, wrote in his daily letter to customers Wednesday that sell signals for all grains are in reset mode for now.
"Our sell signals continue to give us peaks to sell grain like always. When the spring weather looked the worst we had a peak in the corn market to sell. When South America had export problems we had another peak to sell. Spring weather has turned nearly perfect and planting is on schedule in the states that should be planting. Nobody should be surprised when prices dropped as the weather improved," Roach stated.
With weather premium for corn taken out of the market while the CME Group absorbs the large South American soybean harvest, the soybean market has held up quite well, Roach says. "If you look at our soybean chart, notice how the price has traded sideways with higher lows. We would take this as positive and tells us the market is giving soybeans good value even under pressure."
Basting agrees the structure of the soybean futures market is encouraging farmers to sell.
Basting points out that the spread from May to July soybean futures is 8.75 cents, or only 59.5% of full carry utilizing the prime interest rate. "One of the challenges that producers are dealing with is their perspective on prices. For example, the nearby futures contract for soybeans has traded above $9.00 for 32 consecutive months. In general, their perception is that $9.00 prices are low relative to what they were as recently as January; i.e. well above $10.00," Basting says.