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South American yields disappoint

South American yields, thus far, have been disappointing. As a result, soybean prices have rallied further from last week's levels. That has brought the corn market back above resistance marks as well. These are positive technical signs for the grain markets, as next resistance in soybeans is at the $14.50 level, with corn resistance levels at the old highs of near $8. Obviously, the SAM crop has to be much smaller than expected, but so far that seems to be the case. And it could propel old crop corn and soybeans back to the summer highs.  

If that happens, even the wheat market could rally along with old crop corn and soybeans, potentially running as much as 75c higher on the support from corn and soybeans.  

However, there is trouble ahead, as we move into the new crop months of July wheat and Sept. corn/soybeans, when new crop supplies are likely to become available.  You see, we are having a nearly perfect early spring weather (actually still during winter!), with 15-20 degree above normal temps across the entire Midwest and northern Plains. That is allowing fields to dry out and will soon allow planters to start rolling on planting early season crops (potatoes, wheat, barley, and even some corn in southern areas).  The early spring could pressure new crop prices, as it likely means more acres will get planted (leaving out prevented planting options for producers).  That means as much as 11-12 million more acres could get planted in 2012 in the US (about 10 million PP acres and 2 million additional busting acres).  If new crop gets planted early (as it appears it will be in 2011) and acreage expands, we may have a recipe for a bumper crop in 2012.  

That leaves the potential for old crop prices to move higher in the short 

term, and new crop prices to fall under pressure. In other words, a great opportunity to bull spread soybeans and corn, buying May contracts and selling the new crop months against them.  I see this as a tremendous opportunity for speculators, and also for producers to make early sales of their new crop corn, soybeans, and wheat for 2012 and beyond.  

Pro Ag analysts doubt that new crop values can be held much longer, even though we realize there have been production problems in South America.  

However, the US with early planting could have a monster crop, and those who have made sales of 2012 crops forward may find some tremendous rewards for making sales in advance.  

So, while those with old crop left in their bins are seeing some nice rewards for doing so, next year could be a completely different production situation.  If 2012 US crops get planted 2-3 weeks early (as it appears it might be possible), the probability of above 'trend' yields will increase, and that will pressure the market.  We also have adequate moisture levels for germination almost everywhere: it will be difficult for farmers to wait around much to plant their crop, and we could see record fast planting in 2012, given today's forecast of much above normal temps, and mostly normal to below normal precip (except for HRW wheat country, which is forecast to see another storm in the next week or so that will greatly aid developing crops.  

So, while old crop values may soar, new crop values may not participate much, if any, in that rally.  Bull spreaders, have some fun!


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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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