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Grain Prices Go Nowhere, Without Weather Event, Analyst Says
This week’s carryout figures, in the April 9 USDA Supply and Demand report, came in slightly higher than expected for corn and wheat and slightly lower for soybeans.
Unlike the March 29 Acreage and Stocks report, volatility after the April report was moot, and prices finished the trade day nearly unchanged.
Perhaps of most significance is that negative news for the corn market may be winding down. The last several reports have reduced usage for ethanol, feed, and exports, resulting in an increase to carryout from 1.7 to 2.035 billion bushels. While still lower than last year’s 2.140 billion for the same time period, the current trend of increasing corn supplies has kept prices in a sideways-to-lower price pattern.
Expectations for an additional 3.6 million acres also added another layer of bearishness.
This leaves a lot of questions. Why the reductions in demand? Did the USDA overestimate usage, or have political events taken their toll? What about concerns over declining world economic conditions? Will African swine fever reduce demand? The likely answer to all these questions is yes.
The report confirmed soybean carryout is a bulging 895 million bushels. By some accounts, this was considered friendly, as the highest prereport estimate was 1.062 billion. However, the stocks figure is foreboding lower prices.
The USDA also raised the Brazilian crop to 117 million bushels, up from last month’s 116.5 million. Argentina’s soybean crop at 55 million bushels is a record. With U.S. carryout more than double last year’s, price rally potential is not high, and lower prices are likely.
So, where do markets go from here? Prices for all three row crops are unlikely to make upward advances unless weather becomes a factor. Of the world’s corn crop, 75% is produced in the Northern Hemisphere.
As weather develops, prices will react. A 2-billion-bushel carryout in corn suggests downside potential for December’s futures under $3.50. November soybean futures technical signals are pointing toward $8.00. July Chicago wheat futures could drop to $4.35.
Every year is different. Markets have a tendency to move on perception and momentum. Perceptions can change in a hurry, especially when crop production perceptions change.
The key for marketing is an intentional balancing act. Despite a bearish track record since 2013, there have been rallies in all three markets.
Yet, from a macro view, demand and weather uncertainty could change the big picture in a matter of weeks. Sell rallies, perhaps aggressively. Strive for a balanced approach of cash sales and ownership.
Be prepared! Prior planning prevents poor performance.
If you have questions or comments, contact Top Farmer at 1-800-334-9779, ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.