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Tim Hannagan: A continued unwinding

11/12/2010 @ 4:13pm

Some strange and some not so strange price action occurred since Tuesday. 

Wednesday and Thursday saw corn and wheat continue their post USDA crop report profit-taking correction with a Wednesday low on corn of 565 and Thursday low of 557 and wheat low Wednesday at 695 and Thursday 7.016. By Thursday's low corn had pulled $.51 off our Tuesday report day high and wheat $.65 off report day highs. 

But, beans roamed a little different. After falling $.35 from the Tuesday report high opening, January beans opened five higher Thursday rallied to a $.19 gain on the day, while corn and wheat closed lower. 

With all government offices closed Thursday and no news sources to move markets a private crop forecasting group took advantage of an opportunity to draw attention to themselves by publishing a 2011 crop planting reports suggesting farmers will plant 2m.a., less beans in 2011. Of course, this was the only hat tossed in the ring to trade so idle traders, anxious for any piece of news to jump on, bought beans and of course they sold corn as the common assumption is if you plant less beans, you will plant more corn on those acres. 

It's far too early to predict what farmers will plant. If you talk to 1000 farmers from Ohio to California. They would say, I will take 75% of my land and rotate crops. Meaning, what fields they plant corn on they will plant beans and vice versa. The other 25% they will plant whatever crop  brings the highest profit. When you ask a farmer what's his most valuable crop he says his land is. 

If you take care of the land it takes care of you. This is why farmers adhere to such a strict policy of crop rotation. The chemicals and fertilizers used to plant corn are so strong that if you used consecutive years and not allowed to be flushed away by spring rains and aeration. It would burn the soil for the next crop. Soybeans planted the next year allows the soil to rebuild. Farmers won't decide what to plant until February into March,when finances and costs are determined by the early deep discounts offered by seed and fertilizer salesman. 

They will all be battling to get growers to buy their new bio-genetic seeds and not the others with guarantees you can plant it on your head, wear a hat and get record yields. Here's what's certain. They plant more corn and beans acres and not less of one or the other. Growers will plant only what the world wants to eat. The acres lost will come from hayfields, cotton and oats which no longer is exported. 

Friday saw our weekly export sales report come out. It put wheat exports last week at 832 t.m.t up 47% from the week prior thanks to Japan and Mexico, but the key world buyer needed, Egypt, canceled 7t.m.t. Though a small amount it's a huge signal. Egypt is the world's number one monthly importer of wheat. Since the Russian wheat export ban, the US has benefited and become number one port to buy wheat. This suggests the two prior months of aggressive Egyptian buying of US wheat may take a pause. 

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