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Signs of a Market Top, Higher Yields, Analyst Says
Grain prices rallied to new highs the first week in July but have since retreated rather rapidly.
Corn and HRS wheat prices have dropped more than 7% from high to low, a sign of a potential top in the market. Soybeans fared a bit better, dropping only a little over 6% from high to low. Yet, there are troublesome signs in the soybean market, too. The USDA July report brought about a lot of the weakness in corn and beans, as we were reminded we have plentiful supplies at trend yields. (USDA chose not to reduce corn/bean yields, even with some adversity to these crops early this year.)
As of today, we have a nice recovery of about 3% to 4% of those losses, but perhaps that is a selling opportunity? Corn is trading $4.00 per bushel for the Dec 2017 futures contract, and $4.22 per bushel, basis the Dec 2018 futures contract.
Soybeans are at $10.16 per bushel, basis the Nov 2017 futures contract, and Mnpls Sept 2017 futures for wheat is $7.89 per bushel; Sept 2018 futures contract trades at $6.85. All of these prices are levels where producers can either break even or make some money – basically the best opportunities to sell in the past year.
Both corn and soybeans were at yearly lows in late June, a time when Pro Ag yield models were showing we had a below-average crop in both corn and soybeans coming. Since that time, corn prices rose over 40¢, and soybeans over $1 at their highs. Funds were big-time buyers during that period, going from a large net short position to being net long. However, Pro Ag yield models for corn and soybeans have risen since that time, nearly 4 bushels per acre in corn and just under 0.5 bushel per acre in soybeans. So, while the market has rallied, the crop has actually improved over the past month.
This is not a major drought year like 2012. While HRS wheat crops in western areas have been significantly hurt by drought, the corn and soybean crops haven’t to this point. The corn and soybean crops started out rather ragged, but basically are holding near trend yields in yield models. And we are getting to midsummer, so we are running out of time to significantly hurt the corn and soybean crops.
Much of the bounce back strength in grains as of 7/18 can be attributed to the decline in crop conditions of corn (-1% in G/E), soybeans (-1%), and wheat (-1% HRS wheat) on Monday afternoon, 7/17. That leaves corn crop conditions at 64% G/E, well below last year’s 76% rating. Soybean conditions declined 1% to 61% G/E, below last year’s 71% rating. HRS wheat declined to 34% rated G/E, well below last year’s 69% rating.
However, the yield models for corn and soybean rose based on these conditions, corn up 1.75 bushels per acre to 168 bushels, and soybeans up 0.30 bushel per acre to 46.83 bushels. So, after the initial push higher in overnight trade, grains could struggle against those selling on the rise in yield models. It must be that conditions usually decline even more at this time of year. One thing that was surprising was the decline in moisture conditions, with topsoil down 3% to 60% adequate/surplus, and subsoil down 5% to 64% rated adequate/surplus. It could be that soybeans run out of moisture if rainfall stops, but the corn might have enough to get it through pollination for the most part in many areas.
Corn silking is at 40%, 7% behind the normal pace. Soybeans are ahead of normal, with 52% blooming (1% ahead of average), and 16% podding (3% ahead of average).
Cotton crops are rated 60% G/E, down 1% but still above last year’s 54% rating.
Sorghum is also rated 63% G/E, unchanged from last week but down a bit from last year’s 68% rating.
Winter wheat is 75% harvested, 2% ahead of normal while HRS wheat is 91% headed, 4% ahead of normal.
Barley is 89% headed, 2% behind normal but in a weird twist, conditions actually rose 2% to 53% G/E, in spite of the drought. That is still well below last year’s 73% G/E rating.
Oats are 14% harvested, 6% behind normal while conditions declined 2% to 51% G/E, well below last year’s 66% rating.
Today’s seven-day forecast is still calling for above-normal temps in the entire country, with precip below normal except for a couple of areas: 1) a band in southern Minnesota/Wisconsin/Michigan and 2) parts of Kansas, Missouri, and Illinois. The rest of the Corn Belt will see below-normal precip, perhaps a bit less rainfall than in yesterday’s forecast.
The eight- to 14-day forecast took some more precip out of the forecast as well, and now calls for mostly above-normal temps in most of the U.S., and below-normal precip in all the Corn Belt. Only the southeast U.S. will see close to normal precip in this period, as the forecast now stands.
So, as is typical in midsummer, a lot is happening with crops and the market. Typically, mid-summer is a good time to price something, and the market is flashing signs of potential tops in place for some major commodities. If that is so, aggressive sales might be warranted at this time.
Of course, if you are selling at a profit, or even break-even levels, that is considerably better than what has been offered most of the year.
As always, choose your sales wisely!
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 and link to data from Top Producer Magazine and Agweb.com.
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