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'Important' report next week

10/07/2011 @ 7:30am

Before each USDA crop report, there are two major private crop estimates released.  This month, the market got one set of estimates that was perceived as bearish and one that was perceived as bullish.  Something for every market view! 

A few weeks ago, market participants were becoming more and more convinced that crop sizes were increasing.  Early yield reports in key states all seemed large.  The September 30th stocks report simply reinforced negative attitudes.    

Now, with more variable yield reports circulating, uncertainty regarding the crop sizes has returned. Look for a survey on Monday or Tuesday to see how a larger number of analysts are estimating the numbers. 

The USDA reports-the actual numbers, smaller or larger-will be key to price direction into the end of the year.  Wednesday is an important day!

 

Basis Levels

Do not be lazy with these relatively high prices!  Watching basis levels can still add meaningful money to your bottom line.  This year there are two positive things working together to create strong basis levels in corn. 

The first is simply the lack of volume.  This year’s crop and carryin supplies are smaller than the past two years.  Second, the ethanol industry has become a larger and larger factor in farmers’ corn merchandising decisions.  The current profitability of the ethanol industry means these plants can bid aggressively and still lock in good margins.

Given this situation, basis levels could also narrow substantially as harvest winds down.  Farmers will not put corn in a bin and immediately pull it out two weeks later.  The market will need to work to pry corn out of farmers’ hands.

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The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation. 


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