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Ron and Sue Mortensen: Early harvest

The calendar has rolled over to September and some things are feeling different.  The days are shorter, the soybeans are turning, the corn is maturing.  

Crop progress is distinctly different than last year (remember how everyone last fall was hoping for a very late frost?).  This earlier harvest has prevented much of the tightness that was felt last year.  Indeed, the early corn harvest is probably especially welcomed by exporters seeking better quality corn to blend.  Meanwhile, elevators in the heart of the Corn Belt, with no real harvest, are still dealing with poor quality old crop corn, leading to wide basis levels and difficulties in storage and processing.  

If last year was a chance to move crop early at some very strong basis levels, this year seems to be saying store the crop and wait for basis levels to improve.  This is basic elevator-type strategy˜taking crop at wide basis levels and earning the carry and improved basis levels as time goes by.  Of course, elevators will hedge their inventories in deferred months to lock in their margins as well as reduce risk.      

The early harvest this year also features generally disappointing corn yields which continue to raise concern that the overall corn crop will be not quite large enough.  Early bean yields, however, seem to be very large.  This has perhaps provoked a very popular spread trade this week˜buying corn and selling soybeans.    

The first private estimate of crop size was out yesterday and yields for both corn and soybeans were reduced from the August estimates.  There will be another set of estimates out during the trading session tomorrow.  Market participants, having generally expected lower yields, did not seem surprised by the crop sizes.  

The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.  

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