Grains bulls running
The grain bull market is up and running, with corn and soybeans now running to new recent highs, and even wheat participating in the rally lately.
As early as last November Pro Ag was warning about getting too bearish grain markets, and here we are with prices now improving greatly as we move into late spring - a move we correctly anticipated while everyone else was crying like 'Chicken Little' that the sky was falling! It doesn't get much better than this for grain farmers, as prices rising means a better (or at least some) profit margin for 2009. We broke the $4.50 Dec corn futures market this week, and soybean futures are threatening $10 Nov. and $11.50 July on this assault, and this might be just the beginning.
USDA hinted in the May supply/demand report that the less than ideal spring is becoming a problem for grain producers, with a cut in corn yields to 1.5 bu below 'trend' due to late planting thus far. Not only might we be losing yield potential in corn planted late, but we also might be losing acres as well. Given USDA's smaller projected carryout of only 1.145 billion bushels (240 mb smaller than traders expected), if we lost 1 million acres (as Pro Ag projects) we would have carryout projected at less than 1 billon bushels (usually considered a bullish area in corn). Any additional weather problems this summer will provide a nice bull market run. Pro Ag wonders about the wisdom of the market not to be concerned with corn supplies in 2009, as traders seem a little too reassured that late planting can always turn out OK like in 2008. Pro Ag is not so sure! By the time spring is over, the market might be bidding pretty aggressively for corn acres if supplies are really that small. USDA also hiked exports 50 mb and ethanol use 50 mb for 2008/09, showing EXPANDING demand instead of demand destruction. Does USDA know something about the future that we don't??? Perhaps the dollar shrinking in value, or inflation worries starting to emerge??? With demand now expanding and supply still contracting, that can become an interesting market situation!
Soybeans have a supply problem as well, but not for next year (as is the case in corn), instead for this year's old crop supplies. USDA confirmed all suspicions in cutting soybean ending stocks 35 mb from last month to only 130 mb, a very small supply to finish up the year. Given the pace of exports to date, this number is likely to get even smaller as we move forward, as we are still exporting far too many soybeans. We are at risk of running out of soybeans yet before US new crop is harvested. USDA also cut drastically the Argentine production estimate (5 mmt or just under 200 mb) - expected but a huge cut nonetheless (and more to come???). A 200 mb cut in production estimates for soybeans would be huge in the US - we only have a 230 mb 2009/2010 ending stocks estimate today with trend yields. Pro Ag wonders openly if we can hit trend yields with late planting and potential 'mudding in' of soybean acres.