Ray Grabanski: Corn is still king
Last week, we talked about how the corn market has been the leader of the grains, and finally last week it rallied past its recent 18 month range below $4.50, turning trend to higher and keeping the bulls alive with anticipation for how high the corn market can go.
More and more private firms are lining up to reduce corn yields in the coming Sept. report Friday. It it will be interesting to see just where we come out on the US crop. While many private firms are forecasting smaller corn crops, the Pro Ag yield model has expanded 3 bu/acre in August to now sit at 168 bu/acre. If the crop is not running so well out in the field, then why do crop conditions continue to suggest such a good crop (this would be a new record large yield, although only slightly above 'trend')?
Another private firm is expecting corn acreage to be revised higher by a million acres in Sept., but still corn continues to rally to new highs.
It is quite amazing to see corn continue to spurt higher with each passing day, and it does show the bullish tendencies of the market in what is already an impressive rally.
For now, the corn market is showing us all what it can do with a little help from our foreign friends, with Russia, Kazakhstan, and other European farmers having all kinds of trouble raising a decent crop in 2010. It was extremely hot in Russia, Ukraine, and Kazakhstan during much of late July and August. Until now, temps have finally cooled off enough so that we are back at or below normal temps again. But the damage has been done - the drought is turning out to be one of the worst droughts on record in this FSU area. We may find out more about just how bad the drought damage was in the Sept. report, which is expected to further drop the Russian, Ukraine, and Kazakhstan harvest yields.
What will be even more interesting will be the reaction of the market after the report. If US crop production is left at decent production levels (near 44 bu soybeans and 165 bu corn), then the market could react badly if the market has been rallying exclusively on the US production prospects. However, if the rest of the world's crop problems are what is causing prices to rise (as we suspect), then the rally may tilt more on the world production numbers, and the further expected revisions down from the current yield estimates.
Overall, the report might be more important to the market in how it reacts to the information, rather than the information itself. There is little question, though, that the corn and soybeans are both running to new recent highs, and that is keeping the bull market intact for now.
Wheat, so far, has been tagging along for the ride, running higher but still unable to penetrate the recent highs of this summer. Rumors fly about Russia grain supplies almost daily, with bullish reports (that Russia won't export for a year or more) to bearish reports (that Russia might export earlier than December). Who really knows what Russia is thinking, when even Russia officials are contradicting themselves almost daily? Overall, we have some very good prices being offered for the grains right now - all three - wheat, corn, and soybeans. For wheat, $7, $4.50-$5 corn, and $10-$11 soybeans are good numbers, no matter how you look at them. The only question is, will it get even better?