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Ray Grabanski: Corn-topping action?

Corn prices continue to rise the past week, pushing up a little faster recently as prices have pushed near $5 already, after topping $4.50 just last week.  

Prices continue to accelerate their price rise, right as harvest is beginning for the corn market, with 11% of the crop now harvested vs. 6% normally at this time.  So far, harvest yields of the southernmost corn has not been impressive, and the disappointing yields thus far have people talking about an even larger reduction in corn yields in future USDA reports (USDA dropped it 2.5 bu in Sept. to 162.5 bu/acre).  The size of the final US corn crop size is the real question, and so far the market seems to be suggesting that the final size will indeed be smaller than current numbers are suggesting.

Corn prices have gained 5 straight days as of Wednesday (as of this writing), while typically market tops occur with 6-8 days of gains, and then the blow off top can be completed.  At the current pace of price gains, corn could then top out in a few days at $5.20-$5.30 Dec. futures- a price people only dreamt about just a few months ago.  Corn prices are up almost 50% from their lows in June, and prices seem to have accelerated their price rise in the past few weeks.

While everyone is bullish corn now, it seems that livestock producers are starting to feel the pinch of higher corn prices.  Already USDA has lowered the feed use of corn in the Sept. report, expecting some price-rationing already to occur based on the tight stocks situation that has developed with the combination of an 'average' crop yield wise, and the huge drought losses suffered by FSU countries and EU27 crop problems.  

The combination of the losses throughout the rest of the world, and the US producing a disappointing crop (compared to earlier expectations) has meant a good price for corn.

Pro Ag yield models dropped for corn and soybeans this week, with the corn down 1.35 bu/acre from last week to 166.5 bu/acre. Soybean yields dropped a little more aggressively, with 0.4 bu/acre drop this week that has pushed soybean yields down to the 44.5 bu/acre level.  These yield drops are friendly to the market as harvest expands northward, and indicate that indeed the US crop may not be as good as it once was thought to be.  This is the second week that corn yields have dropped in the corn yield model, and the first week that soybeans have shown a similar decline.  The real question is, how far will yields drop, and where will the final corn crop yield be in January??

So far, soybean yields reported thus far have been good, with some very large soybean yields reported in some areas.  Its surprising that soybean yields could be so impressive, while corn yields are less impressive.  

Some producers claim the corn on corn was the worst performers, with the corn on soybean ground yielding quite a bit higher than the continuous corn crops.  Lack of rain and hot weather during August seemed to have an impact especially on southern corn producing regions.  These areas have test weights that are well off of "normal", especially the recent cool year's results such as 2009.  

Once again, its seems it's the cool summers that produce the best corn crops, and this summer was an above average year temperature wise in the Corn Belt.  

So here we are, with prices getting particularly heated up as we approach the US harvest of corn and soybeans.  It has indeed been an unusual year, with the highest prices of the year for corn being offered at harvest - the same as was true of the wheat market in 2010.  So far, prices are hitting their 2 year peaks for wheat during July, with corn prices reaching their peak so far during mid-September.  

These are indeed unusual times, but they also are very profitable times for the US farmer.  You gotta love it when the crop problems are in other parts of the world, and the US crop is above average!  That's good news for US producers, as we get the benefit of much better exports due to the strong demand from importers from the rest of the world. 

The question now is, when do we get more aggressive in sales of corn (as in multiple year sales), and when do we add to soybean sales as well?  It might be a time-frame less far off than most of us would care to admit.  

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The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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