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Potential downside reversal?

Grains are having a tough week so far this week, with corn and wheat running to new highs early Monday morning, only to turn lower by Monday afternoon and form a daily downside reversal. That was followed by another huge down day on Tuesday, and here we sit with prices nearly 20c lower in corn and 25c lower in wheat than we started the week.  That forms a potential weekly downside reversal that could be pivotal as we enter spring.     

And entering spring with a bang are farmers and their planters, with perhaps one of the earliest springs on record in the northern and central US (including the corn belt and Northern Plains). Already HRS wheat planters are moving along with barley planting, and we wouldn't be surprised to see potatoes going into the ground in March (and even some corn in southern states). These are actually before the earliest planting dates for crop insurance, but the only downside is that you aren't covered for a replant payment if it freezes out.  This might be a very good risk to take, as typically the reward is much higher yields due to early seeding (especially if the soil temperature is right).  Reports indicate that even as far north as Grand Forks, ND soil temperatures are already at 50 degrees 2" deep!  Clearly, this favors a very early planting season.

As for moisture situations, plenty of rain continues to fall across most of the US, with the recent wet areas this week including the central and eastern HRW wheat belt, the Delta, and the southern central and central corn belt (MO, IA, MN). That improves the soil moisture situation such that most of the US now has adequate moisture.  In other words, the garden of eden planting conditions are in effect so far in 2012, and that could lead to very early planting into ideal soil moisture situations - a recipe for record shattering yields across the US!  

That is probably one reason why grain prices are dropping hard this week as farmers start planting, and the trade realizes that perhaps the adverse weather of the past few years is in our rearview window? Look for further pressure on the grains if weather remains mostly cooperative across the US.  

The critical time frame will be early April, the date where the first planting of corn can commence under the crop insurance terms as that's when the majority of planting activity could occur.  

But so far in 2012, it looks like most of the corn could be planted in April, and the soybeans planted in May. If that occurs and the temps remain warm and allow perfect germination in already wet soils, we could have a record shattering crop in 2012.  

The market needs to balance the excellent planting conditions in the US thus far with the disappointing yields in South American growing regions.  Its likely that further reductions in crop size will occur in SAM due to disappointing yields.  So that had been supporting the market up to this point.  However, at some point we

need to switch to the conditions in the US, and so far planting conditions look nearly ideal.  Also, we get the March 30 planting intentions report, and Pro Ag expects another 4-5 million acres to be 'found' plnated to wheat, corn, and soybeans.  Most of that acreage will come from Prevented planting acreage from 2011 (over 10 million in ND, SD, and MT alone) that will get planted in 2012 due to the dry conditions the past 8 months in that region. The warm temps this spring are helping to dry out soggy soils as well, and that so far is a good thing for farmers who want to desperately get this ground planted (especially since it must be planted 1 in the past 4 years to reestablish qualification for PP in the future).  

So IF we are forming downside reversals this week, look out below, as fund traders who have had lots of fun with the market going up, might find it just as fun to take prices down later this spring.  

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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