Casting the bear market in stone
A couple of weeks ago, we talked about how the markets constantly surprise us as wheat, corn, and soybean trends turned lower in June. Wheat struggled mightily first, and that infection of bearishness spread to corn, and then finally to soybeans. This occurred at a time when many started to believe a bull market was all that could occur this spring.
Just when the majority least expects it, the market turns.
We went on to say that seems to be a recurring theme in marketing, as markets are not democratic. When the majority are bullish, the market usually doesn't go up, it goes down. And when the majority are bearish, the opposite occurs. Markets are most undemocratic as the majority seem to be wrong most of the time. Once again the DOW has surprised people, as we were heading lower at 8000 after losing 500 points in a few weeks. But not only did we regain the 500 points, but also another 400 more in just 6 trading days as the DOW went on a terror market rally, gaining 11% in just 6 days!
But while the Dow rallied, grains went the other way. Why? It wasn't very apparent as weather is just so-so, with some areas getting too much rain, and some too little. Temps were hot for awhile, but then cooled so that most areas are now cooler than normal. So weather wasn't fantastic or a market item much at all, and crop conditions have remained about steady or just slightly better for most crops since the beginning of the year.
A whole different picture emerges, though, when yield models using those same crop conditions is used. Yields of corn, wheat, and soybeans have all expanded significantly throughout the year, with Pro Ag yields now at the highest levels of the year. Corn is above 160 bu, soybeans above 43 bu, and winter wheat yields finished the highest of their year. Basically, all crops have improved steadily in yield potential since the beginning of the year. That is making it difficult for the market to have a sustainable rally, with millions of extra bushels due to the improving crop yield potential week by week.
Talk of revised acreage by USDA for corn due to late planting has boosted the market Thursday, surprising in that most analysts expected a revision at some stage. The acknowledgement by USDA, though, legitimized those concerns. Coming at a time when everything was bearish has given the market a little extra boost. However, will it last???
Acre is still being debated for farmers, with the signup day quickly approaching. Final 2 year marketing average for wheat, barley, and oats respectively are $6.63 wheat, $4.09 feed barley, and $2.89 Oats. 90% of that is $5.97 wheat, $3.68 feed barley, and $2.60 oats. If prices are below these levels for 2009 with normal yields in your state, the state trigger would be hit and a payment made under acre IF your farm also suffered a 1% revenue loss or greater. These prices are starting extraordinarily high, so chances are improving that ACRE will pay as prices retreat due to good growing conditions and improving yield potential.