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Dr. Jekyll, Mr. Hyde-like grain markets
Grains continue to exhibit a Dr. Jekyll, Mr. Hyde mentality this week, as they rally on news out of South America (SAM) on further cuts in the soybean crop estimates there.
But then we get weekly news of crop progress and conditions, here in the United States and in Canada, and the prices go back down again!
The net result is a soybean market that broke out of its previous 2011 highs, with only the 2008 highs near $16.50 left as a technical target for the nearby futures. Soybeans have gained over $4 from the news of the SAM crop problems since mid-December, and indeed, SAM did have a disaster crop, with yields dropped about 10% below 'trend' from most estimates - a true disaster in the modern era. Recently private crop estimates have dropped Argentine production further as the actual yields were even more disappointing than the dismal projections.
Since SAM is such an important player in soybeans (and not so much wheat and corn), naturally it is soybean prices that have rallied the most.
That has taken the soybean/corn price ratio back up to near the historic highs, with the new crop ratio now near 2.6, or the highs of the historical range. It may have a good reason to be there, though, for now, as the world needs to attract oilseed acreage this spring to make up for the disastrous production numbers out of SAM. It also reflect the fact that the US intended acreage numbers (made out when the ratio was near 2.3-2.4) favored corn production, with enough corn acres in the mix - but probably not enough soybeans. However, the US intended acreage mix left about 8 million acres in Prevent Plant mode, and given the great spring we are having, it's doubtful much if any prevent plant ground will even qualify this year.
Countering the SAM crop disaster (Dr. Jekyll) is the great planting season experienced so far for North America (Mr. Hyde), with planting progress of all crops as advanced as we've seen them in years (or maybe ever). Not only is planting progress rapid, but it's been in ideal soil moisture conditions (not a drought), with most of the US having almost perfect soil moisture conditions to get the crop germinated and growing.
Even the HRW wheat areas or southern plains has received generous precip which has ended the drought effectively in most areas. That is referenced by perhaps the best winter wheat crop ever, with Pro Ag yield models indicating a record-shattering yield near 49 bu/acre, topping the best previous yield by over 1 bu/acre! This is indeed a monster crop, with crop ratings currently at 64% good/excellent, and improving each week as we approach harvest (which is the opposite of normal), meaning the crop size is getting even larger, not smaller, as we approach harvest. We are virtually out of the risk zone for freeze risk to this very early crop, and that means even more acres of double crop wheat/soybeans will likely be planted than ever occurred before (as soybean prices are higher than ever at planting and this is the earliest wheat crop ever).
HRS wheat planting is at 74%, perhaps record fast in a ideal soil moisture situation as typically only 32% of the crop is planted as this time. USDA says 30% of HRS wheat has emerged, and that is also a record - and the crop has never looked better!
Corn is 53% planted vs. only 27% normally, and that means that the May Crop Report will likely push yields another 2 bu/acre above 'trend', or at 166 bu/acre - a new record!!! Its likely with corn planted early in ideal soil moisture conditions that it, too, will produce a record large crop. Add that to nearly every other major crop being ahead of normal planting, and we have the potential for a very large crop in 2012 in
North America. Thus we have the "Mr. Hyde" portion of the split personality grain market. So who wins?
Stay tuned, as the next few weeks will be critical for trends, and market direction. For now, the trend in soybeans is still higher, while corn and wheat languish in what are sideways to down trends for now.
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