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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
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.
Old crop corn trends look like they are turning higher, while new crop corn
continues to stuggle with lower lows and highs. Soybean trend is higher, with a
draft lower this week so far testing that trend. So grains seem at a
crossroads, with some bullish technical indicators offset by some bearish
fundamental news out of the supply side in the US simply due to good weather
thus far. But the demand news is bullish (China), with confirmation of the
demand needing to be played out in the weekly export shipment and sales reports.
So far, those confirmations have not occurred, but the market is patient for
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 judgment and do not guarantee that 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
If you have questions about this column, call Progressive Ag at 1-800-450-1404,
or email ray at email@example.com.
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?