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Is the harvest bottom in? -Ray Grabanski
Grains have rallied back nicely from lows in early October. Just last week, the markets gained over a dollar in soybeans, and accompanying gains in wheat and corn.
However, so far this week grains have been disappointing. Including last night's trade, soybeans have retreated 60¢ this week, before recovering early this morning. Soybeans formed a downside daily reversal Wednesday, including some 25¢ losses by the close, after starting the day higher. That means there still might be some fireworks left in the soybean market. Even with this week's November options expiring, a rally would be an unusual development, indeed.
Typically on option expiration, markets stall at previous price levels to let the most options expire worthless as possible. But recent soybean price action might be leaving more people struggling to keep up with option delta neutral positions with the increased volatility.
Corn and wheat seem a little more subdued, moving in pace somewhat with soybeans. There are differences though. For instance, corn only had 5¢ losses yesterday while soybeans broke 25¢. Corn seems to have a little more support under it, with the large Chinese corn purchase last week likely to provide some support (especially this morning, with the weekly export sales to include those
totals from last week). Corn is another way of saying "SRW wheat", as CBOT wheat is priced as a feed grain, and actually at a discount to corn prices.
Wheat is still the cheapest feedgrain on the world market!!!
Wheat prices have some premium, though, for the HRW and HRS versions, and they are at a bit of a premium to SRW wheat as there are tighter supplies of the higher quality grades of wheat. SRW wheat should end up in feedbunks across the nation (and world), as prices are providing incentive for feed users to add wheat into feed rations of as many kinds of animals as possible. That should encourage the feed use of wheat in the near term.
The key question being asked in most commodity circles is, are the grains bottoms in for the year? Or, do prices have some more downside risk? We may be answering those questions soon, as it appears that soybeans might be testing those recent lows after trading sharply higher last week. This week, prices are drifting lower as more reports of 'better than expected' yields of soybeans are coming in. It might be a foregone conclusion that soybean yields might need to
be raised in the next November report.
That could be the opposite in corn, where yields have been disappointing for many producers, especially in the northern Corn Belt. The problem doesn't seem to be so much the freeze or heat, but the leaching of nitrogen early in the season which pushed N below the roots (which were shallow due to soggy soils during the early part of the summer into August). Fields that were sidedressed with N in June are seeing yields as much as 50 bu/acre higher than fields that
were not sidedressed - a drastic difference indeed!!! Clearly, the naysayers for yield potential this year were possibly right, but for the wrong reasons.
Yields seemed to be hurt less by the heat and freeze than the lack of nitrogen early in the season! But leave no doubt, corn yields are down from last year in many locations.
Overall, we may see a test of the market lows in the near term, but perhaps the key to whether or not we break below these levels lies in the world's outside markets. Lately, the grain markets have been strongly influenced by the outside markets, with grains bouncing whatever direction the DOW, dollar, and crude oil and metals have moved in day and overnight trade. If Europe can solve their debt problems, perhaps the bottom is in. But if not, there might be new lows
yet in the offing.
Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag services, call 1-800-450-1404