You are here
Summer tops are in?
Last week, I mentioned the possibility of potential tops in markets, including
corn and soybeans, where the weekly downside reversals looked formidable.
Soybeans, however, rallied above those levels on an acreage report that was a
shocker to traders. Perhaps, the report revealed the American farmer's logical decisions
(planting more corn and less soybeans). That shouldn't have been a surprise to
most farmers, as the $100/acre PURE PROFIT (over costs) advantage of corn over
soybeans made it more like a no-brainer to plant more corn-it was just a
matter of how much. Clearly, American farmers are no dummies!
correctly anticipated this phenomena by selling 100% of 2007 corn, 50% of 2008
corn, and at least 40% of 2009 corn before this report- a wise decision indeed!
We also delayed sales of soybeans until Tuesday (the price peak thus far), in
spite of 2 weeks of downside reversals - why? Pure profitability logic! We
knew soybeans would eventually become at least 2.3x the price of corn (or
farmers wouldn't plant it), and this week we were sellers of soybeans at 2.5x
the price of corn! Yes, logic does work, and the American farmer is perhaps
the best agricultural businessman on this planet! Did you heed some of last
week's Pro Ag warnings: "With very high prices right now, we doubt the market
will give farmers the chance to harvest at such lofty price levels. If you
don't already have any grain (wheat/corn) needed to be sold at harvest priced, you may need to get busy doing some marketing!"
Today, just 2 trading days removed from report day, corn is looking like a very
tired market, with prices now almost $1 less than just 2 weeks ago when that top
was formed! With a decent corn crop (our current projection is 153 bu/acre),
its likely corn carryout will be 1.75-2 billion bushels -2x USDA's current
projection! The supposedly impossible supply/demand situation to solve has been
The American farmer is a master at responding to market forces and
providing the supplies needed to meet demand. While you can likely put a fork
in this year's corn market (it is done!), perhaps the most bullish long-term
impact for corn is that we have solved this year's supply problem for those
considering construction of highly profitable ethanol plants. It's got to be
reassuring to know the American farmer will respond to $3 cash corn by growing
all you want- especially when break-even to produce ethanol is closer to $4
corn! That might be the most positive development in agriculture for
While that is very positive long-term, the Cinderella fairy tale ride of higher
prices might be over for a few months as 2007 harvest is underway of a very good
US wheat crop. Corn and soybeans appear to be right around the corner, with
cool/wet weather forecast for the entire Corn Belt in July. This is perfect weather for
pollination of corn and soybean development.
If the forecast is right, we may
be looking at bumper corn (160+ bu) and soybean (43+ bu) that could give us
closer to 3 billion bu corn carryout, and 350 mb soybean carryout (instead of
the 200 mb currently tossed around). Ethanol investors can plow money back into
ethanol, and the 2008 bidding for acreage can begin as soon as this year's
harvest is done.
Prices for corn have risen from $2.50 to nearly $4.50 in just
8 months, and now it's not out of the question to see corn drop to $2.80 by
harvest, and rally back up to $4 by next spring (or higher). Soybeans went from
$5.80 last fall to $9 this spring. It's not out of the question for
soybeans to drop to $7.50 this fall and rally back up to $10 by next spring.
You have got to love the opportunities the markets are offering - did you take
advantage of some? The next great question will be - What will the South
American farmer do? This is perhaps the all-important question for now since
the US farmer has done such an excellent job ensuring 2007 crop supplies.
With an above average US crop of corn, soybeans, and wheat currently on the way,
average weather from here on out could mean this year's supply problems have
been mostly solved by the marketplace (kudo's to the American farmer). But, next
year could bring just as much excitement (and probably more) than 2007.
on your battle gear, as the market has a lot more opportunities to present
themselves - both on the upside and downside now. Make sure your weapons
include an advisory service who has at least some kind of clue about how to
extract more profit from this type of environment!
Last week, I mentioned the possibility of potential tops in markets, including corn and soybeans, where the weekly downside reversals looked formidable.