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Psychology will rule the grain markets until harvest
The much awaited September crop report did not have any big surprises. It looks as if the corn numbers were a little positive and the soybean numbers a little negative to price direction. Trade during the session confirms that observation. Corn futures are higher and soybean futures lower as this is being written. If prices close that way, it will be one unusual instance when logic rules the trading.
With so many people bullish the grain markets before the report, it would not have surprised me to see a negative reaction to what looks like a neutral report. I do not remember any report in recent history when so many people were bullish as they were during trading on Thursday. Many times, when the sentiment is so lop-sided, prices go the opposite direction that the report would seem to indicate. Apparently that is not going to happen this time.
Those who are familiar with my seasonal price-trend work in soybeans should not have been surprised at today’s report and the reaction to it. My studies show that it is common for the sentiment to be for lower production starting in the middle of July and continuing until the day before the September crop report. When the report is released, it shows that yields are better than anticipated. That is exactly what happened this time.
If there are no other bullish factors, prices normally drop the last three weeks of September in anticipation of the beginning of harvest. This time period usually produces the sharpest price break of any period during the marketing year. It will be interesting to see if that situation develops this year with the spread between old crop and new crop still indicating that processors need for soybeans for immediate delivery.
Psychology will rule the grain markets from now until harvest gets into full swing. Farmers will be arguing whether the numbers released today are accurate. Those in areas affected by flooding or drought will argue that the government still has production too high. Traders will debate whether the bullish numbers have already been bid into the corn price. The report today may not settle very much. It gives us a general idea that trade estimates prior to the report were not too far off.
Basis could be a big factor in the ultimate return from the 2010 crop. With old crop corn supplies still to be moved through the channels, the cash price will not necessarily move in tandem with futures. This will make sales decisions difficult as sellers try to get the maximum advantage out of the bullish futures market. On the other side, if soybean basis continues to be better for immediate delivery, farmers who watch spreads may be reluctant to sell, anticipating higher prices after harvest is over.