Where Is This Market Going?

07/02/2014 @ 11:18am

DES MOINES, Iowa ( the month of July gets underway, farmer talk usually centers around pre-corn pollination and the weather. However, this year's obvious topic involves the age-old question, "Where are these markets going"?

USDA may have answered that question, in its reports Monday that indicated bigger U.S. 2014 corn, wheat, and soybean acreage and bigger quarterly stocks than expected. The market's immediate reaction to that government message was certainly negative, with soybeans falling nearly 70 cents since that data was released.


So let the rumblings begin. As one central Iowa farmer pondered this week, "Is it 'game over' for these markets, for now"? 

BA DEERE, a Marketing Talk forum contributor stated, "The report was the day the music died. If you didn't have a chair, you'd better enjoy standing for a while."

ECIN commented in the Marketing Talk forum with this USDA report observation: "I always thought that the USDA reports were working on info a month old (the time that's passed) when they're put together. If that is true, here's  the question - if this info is old news, what about the prevent-planted corn acres? And could bean acres go up more?"

Discuss Where The Market Is Going In Marketing Talk 

As you can see, the USDA created a lot more concern about fall prices and sprouted more and more questions for industry experts. A few questions that bubble to the top include: "Where is this market going, where do we go from here on corn and soybeans, what shoe has to drop to get a turnaround on prices, and will China ultimately have a heyday with these lower prices? 


Mike North, First Capitol Ag senior risk adviser, says given what we know today, the simple answer to the market direction question is down.  "The reality, however, is that many things must happen between now and harvest for that to be fully realized . . . pollination in corn, flowering and pod-setting in beans, frost potential, crop drydown, etc," North says.

If all of these events were to go off without issue, it could be assumed from the balance sheet projections and historical price behavior where the market may try to reach, North says.  Presently, the ending stocks number in corn and soybeans can be estimated to be approximately 1.75 to 2 billion bushels for corn and 350 to 480 million bushels for soybeans, using the USDA's Monday record acreage numbers and current trendline yields.

"Weighing these numbers against projected demand provides us with stocks-to-use ratios of 13% to 15% in corn and 10% to 14% in soybeans. The last time these ratios were this high was in 2008/09 for corn (recall that this is the marketing year which begins Sept 1 and runs through Aug 31, so it came well after the $8 corn price and spent more time nearer to $3/bu) and 2006/07 for soybeans when the average price paid to producers was $6.30/bu."  

Jack Scoville, PRICE Futures Group senior grain analyst, says there is a lot of talk about a $10 soybean market. "I do not think China will be the big bean buyer, like last year, as the government is now moving to end the use of beans as collateral for loans against other projects. Plus, they so overbought this year that it must be costing them a lot of money," Scoville says.

Regarding near-term price calls, Scoville sees soybeans losing to corn and wheat. "I am not a real big bear on corn; we are cheap enough given what we know.  We can rally back to $4.50 or higher in the near-term, like this month, then push on down to $4.00, I guess," Scoville says.


If the stocks-to-use-ratios mentioned above are realized, they suggest prices that are near $3.50 in corn and $9 in soybeans, North estimates.  "However, making mild adjustments to accommodate greater demand raises our price objective, but to levels that are still lower than current offerings.  If the many events named earlier do not go perfectly, and yields don’t pencil out as currently suggested, then all of this is for not.  The summer will be interesting as we continue to peel each layer of the onion away in search of the final yield and harvest price.  Let’s hope that neither brings us tears," North says.

The latest weather outlook for the major Midwestern states, for the July-August timeframe, is calling for wetter and cooler, according to the MDA Weather Service. "The continued cool conditions across the Midwest, Delta, and Southeast will maintain lower risks of heat stress on corn and soybeans," the forecaster stated in a daily newsletter to customers.

However, this cooler, wetter forecast follows a wetter-than-normal June. In addition, with many soils already saturated, agronomists are already reminding folks that soybeans don't like wet feet. So, mother nature may not be done with determining the fate of this year's crops.