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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.
The triad of what you think state yields will do, your own individual yields,
and the price for 2009/10 marketing year are the big 3 in this ACRE decision.
What is your best guess today??? Pro Ag believes new crop futures prices offer
the best clues for wheat, corn, and soybeans. USDA makes their own price guess
for every crop every month in the USDA report. For yields, crop conditions as
rated by state are published every Monday afternoon. For your own yield,
farmers are probably the best guessers! Use this information, as it does
provide some unbiased guesses right now of the crop potential. Bottom line for
wheat, barley, and oats producers may be that yield potential is so good with
cool/wet conditions in most areas that the increased yield may compensate for
any loss in price. So for growers of predominately wheat, barley, and oats in
the Northern Plains may not want to participate in ACRE. For corn producers
with tremendous freeze damage exposure, it could be a completely different
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgement and do not
guarantee profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.
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.