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Corn, Beans Rally to Yearly Highs

Finally, grain prices have done something that is fun to write about again! We have rallied to yearly highs in corn and soybeans, and HRS wheat prices are at the highest levels in four years. If current resistance levels give way, a lot more upside potential is present. It looks like we are going to get an opportunity to sell grains at profitable levels in 2017 – just when it appeared there was no hope.  

Crop conditions released Monday, July 10, indicated another decline in crop conditions of most major grains. The biggest grain is always King Corn, with the most acres and production across the U.S., and corn conditions had one of their larger declines of the year. Corn rated good/excellent (G/E) dropped 3% to 65% rated G/E, down from 76% last year at this time when we recorded record-large yields.  

It is becoming more and more clear that the 2017 crop may end up average at best. With more stress at pollination and to end the year, it could even be moderately below average. Considering we only need to decline another 5 to 8 bushels per acre from current yield potential to get relatively tight in corn stocks, the market needed to respond to the relatively modest corn crop this year. Pro Ag yield models dropped about 0.5 bushel per acre to 166.3 bushels per acre, well below USDA’s current figure of 170.7 (about 4.4 bushels per acre). If we drop to 160 bushels per acre by the end of the year (a very attainable figure given today’s weather forecast), that would reduce corn carryout by about 900 mb! That would start to get the market concerned, especially if the crop is still growing and at risk of further declines. Corn development is a bit behind average, with only 19% silking vs. 27% average. (Is that due to all the replanted corn?)  

Soybean conditions also declined 2% this week to 62% rated G/E, down from 71% last year. The Pro Ag yield model declined slightly to 46.53 bushels per acre, down 0.03 bushel per acre from last week. Still, USDA is estimating a 48-bushels-per-acre crop, so we already are 1.5 bushels per acre below USDA numbers (or about 120 mb of production). That reduces carryout from near 500 mb to only 380, and we still have a growing crop that is under stress, with a warm/dry forecast the next two weeks in most of the country. Soybean futures have rallied the past few weeks from the year’s lows, to the year’s highs today around $10.45. That’s a great accomplishment, and if they can break above that resistance mark of the year’s highs, there’s a lot of room to go even higher. Soybeans have time to develop more problems, too, as they need good weather in the month of August to make that crop. With a current forecast of warm and dry, that might be difficult to achieve. About 7% of soybeans are podding, about 2% above average while 34% are blooming, also 2% ahead of average.  

Wheat prices have also surged higher in the past few months, but HRS wheat has risen the most, rallying from $5.50 May 18 to over $8.50 by July 4. HRS wheat conditions continue to decline, down another 2% this week to 35% rated G/E, well below last year’s rating of 70% rated G/E. 79% of HRS wheat is headed, about 5% ahead of average. Winter wheat is 67% harvested, 2% ahead of average. HRS wheat, however, had a negative technical formation after reversing lower last week, so it has to clear last week’s highs over $8.50 in order to turn technicals bullish again. Yet, fundamentals appear to still be friendly as the crop is still developing in adverse drought conditions. That is leading to lower crop ratings, and at least it appears the crop is still declining. The key question is whether the rapid price increase has already built the crop decline into prices.  

Barley conditions are also still declining, with ratings down 1% this week to 51% rated G/E, well below last year’s 74% rating. Barley is 72% headed, 6% behind normal. Oats are rated 53% G/E, unchanged from last week but below last year’s 57% rating. Oats are 93% headed (1% ahead of normal), and 10% harvested (3% behind normal).  

Other crops like cotton appear to be developing quite well, with ratings up 7% this week to 61% rated G/E, above last year’s 54% rating. Sorghum is also improving, this week up 1% to 63% rated G/E. Sorghum is 28% headed (1% ahead of normal), and 18% coloring (also 1% ahead of normal).  

We do note that soil moisture in the U.S. declined last week in both topsoil and subsoil, with topsoil ratings down 5% to 63% rated adequate/surplus (well below last year’s 71% rating). Subsoil also declined 4% to 69% rated adequate/surplus, which is a pretty large decline for one week for subsoil conditions. Apparently, it was a pretty dry week last week for much of the country.  

With a mostly warm/dry forecast for the next two weeks (with the eight- to 14-day warmer/drier than the seven-day forecast), we could see more fireworks in grains markets over the next few weeks. And this is exciting for us, as just a few weeks ago it appeared farmers would not get another chance to sell grains at profitable levels in 2017. Do you believe in second chances? Apparently the market does!

Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See http://www.progressiveag.com for rankings.

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