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Grains Quietly Approach Market-Moving March

Prices have been drifting the past week after running to seven-month highs in corn the week prior. There is generally not a lot of news in February as it’s still too early to be concerned about U.S. weather (which has seen well-above-normal temperatures for much of the Corn Belt). Most snow has melted in the U.S., which makes it feel like an early spring is possible. However, we actually still have four to eight weeks of real winter left (eight weeks if you live in North Dakota), so perhaps it’s quite a bit too early to get excited about a potential early spring. Weather patterns have plenty of time to change before spring hits and the actual planting season gets under way.

We are left with a slow trading pattern, one in which grains move back and forth – one day trading higher and the next day sometimes almost exactly reversing the previous day’s move. But after all, we have plentiful stocks of all grains, and there is no reason for any significant move in any grain until something happens to change that dynamic.

So far, South American weather has not provided the kind of impetus to change that dynamic. There was one bout of heavy rain in Argentina that pushed USDA to lower the Argentine soybean crop 1.5 mmt in the February USDA report. Then again, the excellent weather in Brazil caused USDA to raise the Brazilian production estimate 2 mmt in the January report. Overall, the South American weather so far this winter has been mostly favorable for Brazil, and slightly unfavorable for Argentina. There is nothing in the forecast for the next two weeks, either, to change that general outlook. So prices remain caught in a range.

What is somewhat encouraging is that prices of most grains have been in an uptrend since September 2016, at which point HRS wheat, corn, and soybeans all basically bottomed. Since then it has not been a torrid pace higher by any means, but instead prices have slowly ground higher. That in spite of larger projected ending stocks and yields of corn and soybeans in the October and November reports by USDA. It wasn’t until the January report that USDA slightly reduced the projected 2016 corn and soybean yield projections. Still, they were record-large yields, with stocks much above last year’s levels.

Yet, prices for new-crop 2017 grains are higher than last year at this time in February. Corn is still about 10¢ higher, soybeans $1.35 higher, and HRS wheat 50¢ or so higher than last year’s base prices for crop insurance set during the month of February. That is also a positive sign in the ag world.

When a person starts looking at the long-term charts of grains, it’s hard not to notice that corn has a double-bottom on weekly charts nearly 22 months apart, bottoming around the $3 to $3.20 area. Prices have been low the past two years, and that generally builds a demand base upon which we need adequate supplies to feed. On the soybean front, China’s appetite for soybeans has continued to be fed by larger and larger U.S. yields of soybeans the past three years. That was capped by a yield in 2016 almost 10% higher than the previous RECORD-large yield! That’s a big supply of soybeans available to feed the seemingly insatiable demand of the Chinese.

Now let’s move to 2017. For starters, one has to expect a more normal planting season in 2017 (not the ideal planting conditions we experienced in 2016 when little prevent planting occurred). Instead, it’s likely that 2 to 4 million fewer acres will be planted in 2017 than in 2016 if a normal spring planting season occurs. Furthermore, we can’ project a record-shattering yield in all three grains; instead, trend yields will need to be projected for 2017. That means instead of 52.1-bushel-per-acre soybeans, for example, we’ll be projecting 47 bushels per acre or so for 2017. Even with 4 to 6 million more acres, that means less total production in 2017. Same with corn: 174.6 bushels per acre in 2016 will instead be replaced with about 170-bushel-per-acre trend yields for 2017.

Then we need to start trading weather in 2017, of which the possibilities of below-trend yields are just as strong as above-trend yields. The weather dictates where we end up in final yields; as the weather goes, so will also prices go during the actual 2017 growing season. That focus will begin in April when the planting season begins, and continue through August when soybean yields are typically made, and even into harvest when harvest losses can always occur.  

So there is much to be traded yet in 2017. February might be the slowest month of the year, with not much news to trade other than the USDA Ag Outlook, where USDA Ag economists will make their best guesses for the next 10 years (of which projected 2017 acreage seems to get the most notice).  

Enjoy the quiet trading of wintertime, as soon markets will start to heat up a bit more as farmers get busy in fields, and the Northern Hemisphere crops once again start to grow.  

NOTE: Pro Ag “Turning Bushels Into Profits” Seminars this week:

  • Tuesday Feb. 21 at Glen Ullin, ND city auditorium 2 pm CDT  
  • Wednesday Feb. 22 at Dickinson Research Extension Center at 9 am MDT
  • Wednesday Feb. 22 at Choice Financial in Belfield, ND 6 pm MDT
  • Wednesday, Feb. 22 at Alerus Center, Grand Forks, ND (after Day 1 of the ICE Show), Hawk Meeting Room #5, Supper 5:30 pm

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.

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. 

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