Is the writing on the wall for edgy grain markets?
Grain markets are still on edge, even though the last two USDA reports have lessened the worries over supplies.
USDA, on March 30th, said we were switching the necessary acres to corn from cotton (3 million acres), HRS wheat (1 million acres), soybeans (8 million acres), and adding another 3 million acres of land to grain production that wasn't even planted last year. We also slowed livestock feeding of corn due to high prices, effectively showing an even more important cut in feed use.
The April report Tuesday showed the impacts of the stocks report on US corn supply, cutting feed use projections 125 mb, and raising corn carryout the full amount. This effectively raised ending stocks 17% from previous levels, leaving a lot more comfortable grain buyers for the rest of this year. And this might not be the last revision to corn feed use! USDA also hiked South America corn and soybean production a bunch, and this also raised world ending stocks of both soybeans and coarse grains. We won't be running out of grain this year based on these numbers, so the edge should be off the market.
But is it? Actually, grain prices are hanging around the winter's highs yet, with cold weather moving into the US Corn Belt in April and causing the first crop scare of the year (a winter wheat freeze). Pro Ag models indicate we lost at least 40 mb of wheat last weekend, and with the cold/wet weather continuing this week, the market is holding up quite well so far. Witness especially the Dec08 and Dec09 corn markets, where prices actually are at or even above price levels two weeks ago (before any of these reports were out). So far, there doesn't seem to be much fear in 2008 or 2009 soybeans either, as both are still trading at or above $8.20- near yearly highs. A few more weeks of cold/wet weather, bulls say, and this market will drive sharply higher. The same bullish enthusiasm started this week, too, after perhaps the worst freeze in a decade or more over the weekend in winter wheat. But the open Monday was the highest price for the week so far!
Nearby contracts are weak, though, with the 2006 crop months and new crop 2007 contract months showing some signs of pending price drops, dropping below $4 corn and $8 beans. Although prices haven't dropped much yet, we still are not far from $4 Dec07 corn futures (13c) and $8 Nov. soybeans (8c). We have spent only a few days below the $4 corn and $8 bean level so far on 2007 months, but perhaps dropping below these nice round numbers is an ominous sign in the market?
While planting delays and a cold April are getting some excited about a possible bull market yet in grains, we note that large speculators and hedge funds have been busy liquidating long positions in almost all grains the past few weeks. Hmmm, I suppose that should make us think about their outlook for the next few months?
While it's possible that we may not get into the fields until May, one should not forget that a 5-10 day planting window at the right time could make a great deal of difference in grain areas. A couple 60 degree days in the Corn Belt could make quite a difference, especially if excess water has run off topsoils during the recent cold spell. While it's human nature with snow flying to assume planting won't start for weeks, sometimes nature can surprise us in how quickly it can change. (For example, how much difference from March were the first few weeks of April?).