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Collapse in grain prices

We warned producers last week about a potential collapse in grain prices if we tested the recent lows and the support levels failed at $6.30 Dec corn and $11.70 Jan soybeans. Unfortunately, these levels did crumble under selling pressure from the funds in the marketplace, and once they did drop - just as Pro Ag expected - the pressure mounted for even more losses. There just isn't much support below those levels until much lower levels (and even then there is only scattered support).  

Very quickly, we have dropped even on a shortened Holiday week for Thanksgiving to prices below $5.90 on Wednesday's close. Corn should quickly drop to the next support level at $5.70, and this again will be the second test of that level this fall (a bad sign). Can this potential double bottom hold? If not, it opens up even more significant downside risk in the market to levels we haven't seen in well over a year.  

The precipitous drop in corn prices was especially hard on other grains, as wheat is already priced as a feedgrain (we call it "corn2"), and soybeans are at historically low price levels relative to corn. With corn prices dropping hard this week, it was easy for the other grains to crumble lower. Most distressing about the grain weakness this week is that they performed poorly even when the rest of the markets were performing better (crude oil, other commodities and equity/dollar values). That seems to suggest that the fundamentals of grains are not very good - meaning the large world crop production levels have probably largely offset the poor US crop (which was 9% below trend in corn and 5% below trend yields in soybeans).  

Weather seems to still be relatively bearish, as the eastern HRW wheat belt and SRW wheat belt continues to get frequent rains that is restoring the soil moisture levels in the regions, and helping to 'heal up' winter wheat prior to freeze up this fall. That is especially true in the eastern HRW wheat belt, where weekly rains have occurred the past 4-5 weeks that has helped to improve crop conditions. Winter wheat is rated 50% G/E, above the 47% rating last year and is starting to diverge away from the plummeting ratings of last year at this time.  

South American (SAM) weather is also good, with recent rains and advanced planting meaning another bumper crop might be on the way in SAM. Today, as a period of 7 days of drier weather is forecast for southern Brazil and Argentina, but that is forecast to move back to more normal precip in the 8-14 day forecast. Temps are still below normal in Brazil (where it typically can get hot), while it is Argentina (a more moderate climate traditionally) that is getting a little above normal temps.  

This is a recipe for more price pressure in grains, and we need something to jar the market out of its recent downtrends! If not, we could continue to lose price levels as we move into the storage period for grains. But should we be storing any grain at all?

Last week we suggested producers should look to get defensive, and protect some good pricing opportunities for the 2011 through the 2014 crop years. Some of the excellent price opportunities that we were staring at a week ago have already disappeared, but we still have price levels of $5.50-$5.90 corn (still something to be thankful for) and $11-$11.75 soybeans. These were levels we only dreamt about a few years ago, but today we look at them and are not very impressed.  

But the question isn't "Do these prices look impressive now?" when we've just come off the mountaintop of prices just a few months ago ($8 corn - the all time highs!). Instead, perhaps we should be asking "Will these prices look impressive in 6 months, when we are planting the 2012 crop?" Pro Ag openly wonders if the appearance of these price levels won't be drastically changed by that time. This is the paradigm of pricing!

We wish you all a Happy Thanksgiving, and may all your price wishes have come true over the past pricing year!  

The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable.

The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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