Winter Is a Good Time to Buy, Analyst Says
Grains have been struggling as of late, with South American production starting to come online with expectations that Brazil is about 10% harvested with its production. Weather has been relatively good in Brazil, with private estimates of crop size increasing recently with the cool and mostly normal precipitation weather they have enjoyed. Argentina has also had some improvement in weather, with a period of dryness after heavy rains caused some flooding in early January. Now, weather has returned to a more normal pattern, with normal rainfall and normal to above-normal temperatures. This has not been a threatening forecast for South America (SAM) thus far this growing season.
So in spite of continued strong exports, prices have drifted sideways to lower recently. This week’s export weekly export inspections were good once again at 60.1 mb soybeans, 43.8 mb corn, and 22.7 mb wheat, so really the exports are continuing their strong pace. But exports alone can’t push grains higher, as the growing crops in the fields of South America may be providing more direction than the pace of U.S. exports right now.
SAM weather forecasts have changed little from yesterday, still forecasting for the next two weeks normal to above-normal precipitation forecast for virtually all of Argentina and Brazil, which will help grains to fill as we finish out this growing season. But it also could hinder harvest in northern Brazil, which has begun. Temperatures will remain below average in Brazil and normal to above normal in Argentina, a very consistent pattern this growing season for SAM. This forecast is likely to lead to more production for SAM, with Brazil production expected to be hiked in this week’s USDA report.
After the recent bounce higher in grains, we could see another setback and test of the recent lows. We would buy back half of previous hedges if we dropped to $10.01 (next support in soybeans), and target another setback to buy back the rest of the 2016 hedges. For March corn, we could drop to next support at $3.49 March futures, where we would buy back half of 2016 hedges. $5.44 March Mnpls wheat is still a good place to put long positions on in the wheat market.
We believe winter is still a good time to buy grains after we’ve depressed them with the big crops we produced in 2016. Record-large crop yields generally produce low prices, and that is just what we have received in the winter of 2016-17.
But as we said last week, once we turn everyone bearish, the corn market will have to deal with a loss of anywhere from 4 to 6 million or more acres from last year for 2017. Then, yields are unlikely to be 175 bushels an acre again in 2017 like they hit for a record-shattering yield in 2016. Instead, trend yields are more like 170 bushels per acre, and the same can be said about U.S. soybean yields as they are unlikely to hit 52 bushels an acre when trend yields are 47.5 bushels an acre.
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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