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Testing recent lows?

Grains have had some time now to digest the recent USDA
report, which basically found smaller US crops (wheat, corn, and soybeans), but
also found that world production offset much of the reduction in the US
crop.  That left supplies adequate
to survive until another year, with the world relying on the improved crops in
Ukraine, Russia, and other parts of the world to 'get through' this marketing
year. 

Price came under increased selling pressure, and now we are
approaching some recent lows at $6.30 Dec corn and $11.70 Jan. soybeans -
support levels that already have been tested once in recent weeks.  That is especially disheartening with
the support levels below these areas few and far between!  In other words, if the support fails
this time, its look out below!  The support under these levels is not very strong, and it could be a
precipitous fall if we break through these support levels. 

Wheat has also seen selling interest, but winter wheats are
already priced as feedgrains so that wheat cannot fall much more without corn also
falling (corn is providing support for wheat prices).  Soybeans also are relatively low compared to corn (a ratio
of only 1.8 or so with corn), a historically low price ratio.  If soybean prices fall much more, that
will provide even more incentive for the world's producers to plant more corn
at the expense of oilseeds. 

On the positive side, crude oil has crept back up to over
$100/barrel, a 33% rally from the lows this summer of around $75.  The strength in crude oil should be
providing support to corn prices, the alternative to oil for energy.  The hike in crude oil prices should
ensure that ethanol production should remain profitable in spite of very high
corn prices. That takes some of the pressure off corn prices, and perhaps is
one reason why corn prices haven't fallen to the pressure from the rest of the
grain complex?

Weather remains an enigma, with HRW wheat areas actually
improving in crop conditions this fall as we move into freeze up of winter
wheat.  The crop is virtually all
planted, and frequent rains (at least more frequent than during the summer
drought) have improved soil moisture conditions, and now the crop is rated 50%
G/E, well above last year's 46% rating even though we started the year about
equal to last year's ratings.  The direction
crop ratings are going is UP, not DOWN like last year at this time.  Especially improved is the eastern HRW
wheat production area, there rains have been at least weekly for the past few
weeks.  That has much improved the
eastern portions of OK, TX, and KS. 
However, western portions are still in dire need of additional rains to
improve the crop as we enter freeze up. 

South American (SAM) weather has greatly aided the planting
and growth of this year's crop, with intermittent showers accompanying early
planting to leave very high yield potential to start the year there.  SAM producers are likely to harvest
another bumper crop in 2012, one which is also likely to offset the
disappointing results in the US (a 9% below trend corn and 5% below trend
soybean crop yield).  That is
highly needed by the world, as we would be in trouble for soybean production
needs without the large production out of SAM. 

As we go forward, it is very much a concern that IF the
$6.30 Dec corn and $11.70 Jan soybean support levels tumble over, that
increased downside risk opens up in grains.  That would indeed be a disastrous impact, as the downside
could quickly accelerate in grains, especially if outside markets start to show
signs of weakness.  Overall, it is
probably a time where producers should get defensive, protecting some good
price levels for 2011 through 2014 crop years.  

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