Grain strength persists
Strength in grains has persisted this week, in spite of some negative outside market influences. In two days, crude oil dropped $5-plus, the dollar jumped sharply, and the stock market nose-dived. That is impressive that grains can hold their values while the other markets are struggling mightily. Is this a sign of a long term value being found in grains at current price levels? Or is it just a matter of time for grain prices to follow the outside markets?
Troubles in the stock market have risen due to a number of factors, not the least of which is the European debt troubles with the PIGS countries (Portugal, Ireland, Greece, and Spain). Also this week, investments in oil were in trouble, with oil prices plummeting as our leaking off-shore well and the huge US environmental problem from British Petroleum continues to wreak havoc with the market. Investors are struggling to find value, and it seems to be landing in the safe haven of the US dollar, which has soared in value this week. But that didn't preclude investors from owning grains, too, as perhaps they have become an investment that isn't subject to these questions regarding value. After all, it appears China does want to buy both soybeans and corn from the US.
So the values keep flowing into the grains in spite of what is now a record fast planting pace for April. 68% of the corn crop was planted in April, much more than the previous record and well ahead of the normal planting pace. This early planted corn was damaged somewhat in TN and KY due to flooding conditions last weekend, but across the rest of the US the conditions are still quite good. The coming week will be wet in the Northern Plains and Lakes states, but much of the rest of the country in southern areas will see continued rapid planting progress. Northern areas will have cooler weather, too, which will put some fear into bears as these cooler temps are likely to delay crop emergence.
But overall, in spite of the strength of the markets, its still likely that crop sizes have grown in the past month with early planting of corn (and most other crops) and continued good conditions in winter wheat crop ratings. Pro Ag yield models continue to suggest a 48.8 bu/acre crop, well above trend yields of 46 bu/acre. IN spite of KS crop tour finding smaller than expected yields in KS so far than last year, still our Pro Ag yield model is well above last year and 'trend' yields.
With corn planting early, its likely an extra million acres or so will get planted. There will be very little prevent planting acreage on a early season like this year, and with early seeding its likely the yield for corn will also rise from trend (3 bu or so?). Overall, Pro Ag would add another 300-500 mb or more production to the corn number given the excellent April weather. That type of increased production will be hard to offset with improved demand.
However, prices are actually higher in the past month for corn and soybeans, which suggests that somewhere the expectation is for additional demand to come into the market. The obvious choice is China, with its first purchase of corn in years adding to expectations of further purchases. Rumors about that include from 30-50 mb will be bought in 2010, and perhaps 100-140 mb bought in 2011 from China that will boost the demand side of the corn S/D table. The other perception is that we have found a value for corn ($3.50?) that makes it attractive to China to buy. This change in market psychology may be primarily responsible for the boost in prices to date.