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USDA offers a surprise

01/10/2014 @ 3:16pm

A group of farmers has been meeting at Mom’s Café in Plattsmouth, Nebraska on the first Friday of every month since January 1986. The meeting has been cancelled only one time, prior to this week. In that instance, the problem was snow. Last week, on my way to town, I heard on the radio that there was a fire in Plattsmouth. When I got there it was obvious that the fire was a real disaster and that I had no business being in the area. I rescheduled the meeting for today. It was only the second time in 27 years.

The format of the meeting originally started out as a marketing club. Over the years, it has evolved to include any subject that is current at the time. Marketing continues to be a favorite almost every month. Today’s meeting included a lot of discussion about the crop report which was released three hours later. A government crop report was released at 11:00 A.M. Most of the farmers at the meeting felt that the attitude going into this report was overwhelmingly negative. It seemed as if everyone outside of our group thought the report would show more grain than previous reports. That could very well have happened.

Most of our group thought that the trade was being too negative in its outlook. Some thought the boat was loaded too far to the negative side. Some actually expressed bullish sentiments. My experience over the years is that when so many traders and farmers feel the same way,  prices are setting up for a surprise. It is a manifestation of the Murphy’s Law “What everyone knows ain’t worth knowing”. In the case of today’s market what everyone knew was wrong and the minority was right. 

To reinforce my attitude about the current corn market I looked up long term seasonal charts for both soybeans and corn, old crop as well as new crop. In searching the long term charts I found that odds are good that prices go up following the report. In analyzing the potential price direction, I conclude that the report does in fact move grain prices. In the short term new crop December corn futures and new crop November soybean futures tend to drop for a few days in early January. That happened already this year.

However, on the other hand new crop bids do not stay down for very long. The overwhelming tendency for both crops is for prices to rise from now going all the way into June. I understand the fundamentals are very negative with the South American crop on the horizon. However, there is also plenty of time for surprises between January and next fall’s harvest. The first surprise came this morning. January and February are not normally months that are good times for selling.

The big question now is whether there will be follow through in the corn market Monday. Even after Friday’s report price are still below breakeven for many farmers when fixed costs are included in the calculations. Holding off sales until the March to May time period makes even more sense now with the numbers on Today’s report.  At the very least it makes sense to sell into an uptrend. We haven’t had that possibility for a long time. I hope today’s rally is the beginning a selling opportunity. We have waited a long time!

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