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The Grain Market Yo-Yo
Grains did it again! Another push higher, followed by another push lower, in rapid succession. We used to think a 7% correction lower meant a potential top in the market. But not this year.
Chicago July wheat is a good study in how this has failed this year. It traded a low of $4.37 December 12, only to rally to $5.32 by March 2. It then dropped to $4.59 by March 29, a 13.7% drop.
Potential top? No, we rallied back to $5.10 by April 10, only to drop 42¢ to $4.68 April 24. Now a top? No, we rallied to $5.38 May 3 – a new high. Then we dropped 9.7% to $4.86 by May 15. Now a top? No again. We rallied back to new highs at $5.54 May 29. Now we’ve dropped 51¢ in just five trading days to $5.03, another 9.2% decline.
In reality, we’ve really had a market that goes from nearly top of the one-year range to the bottom about every one to two weeks. This is a very volatile market, but one that is essentially going almost nowhere as it wiggles up and down.
If there has been a direction, most grains have pointed higher in general as evidenced by the new highs the end of May in most markets. In the big picture, these aren’t typical trending markets. They’re almost directionless, rangebound markets. Perhaps that makes some sense, as we still have relatively large stocks (even though they are projected to be lower in 2018).
Prices are also in the bottom of the long-term price range (as they should be with large stocks). So until something forces us to put the grain markets in gear, they are stuck essentially in neutral.
Monday’s trade was another big down day, and once again many are calling it a top in the market.
However, these signals are not working in 2018; normally a 7% drop or more has signaled a top in the market. We’ve already had several moves like that (the Chicago July wheat example above) in 2018, in both crude oil and many of the grains. Each time we seem to have roared back with new highs, so this is indeed a very erratic market time period.
In fact, in crude oil, we’ve had over 10% breaks a few times this year, and we’ve roared back to new highs each time. Soybeans have also had greater than 7% breaks, and each time, they have roared back, as well (although July has not made new recent highs as did November beans; in fact, it is making lower highs and lower lows – a sign of a bear market while November ran to new highs last week with corn and wheat). Funny thing how November soybeans can make new highs while July struggles. So, these technical signals have been erratic, to say the least, in this choppy 2018 market.
From a fundamentals standpoint, we’ve come a long way from where we were May 1, when almost nothing was planted in the U.S. We basically planted most of the crop (all crops) in three weeks in May, and we are about on schedule for the growing season now. Corn planting is 97% complete (2% ahead of normal), while soybean planting is 87% complete (12% ahead of normal). Soybeans are 68% emerged (16% ahead), and corn is 86% emerged (3% ahead).
Soybeans are rated 75% G/E, a high rating for so early in the year. An early Pro Ag yield model shows 48.45 bushel-per-acre potential, actually a bit above trend at 47.86 and about the same as USDA’s current 48.5 bushel-per-acre estimate. This is good for the crop to be rated this high this early, and it indicates the U.S. soybean crop is off to a good start.
Corn is rated 78% G/E, down 1% from last week but still 10% above last year at this time. Corn yield potential is about unchanged this week at 173.4 bushels per acre, the same as last week and still above trend of 171.4, but a bit less than USDA at 174 bushels. This also indicates a good start for corn, one that would lead to a slightly above-average crop if it can maintain that rating through the year.
Cotton is 76% planted, right on schedule, but it’s poorly rated at only 42% G/E, down from 61% last year. HRS wheat is 97% planted, 3% ahead of normal with emergence at 81% (1% behind normal). Sorghum is 61% planted, 7% ahead of normal. Sunflowers are 49% planted, 8% ahead of normal. It’s amazing how quickly we planted the 2018 crop and went from way behind to ahead of normal in about three weeks! It's a remarkable feat that U.S. farmers pulled off in 2018 with the help of Mother Nature!
Winter wheat is 83% headed now (equal to normal), and 5% is harvested vs. 4% normal, so we are a bit ahead of normal with the recent warm weather that accelerated development. Typically that can lower yields to mature quickly, and this week, winter wheat declined in ratings for the first time in many weeks to 37% G/E (down 1% from last week). The Pro Ag yield model also declined slightly to 48.01 bushels per acre, down 0.07 bushels from last week and the first decline in seven weeks.
So the heat may finally be getting to the winter wheat crop, and perhaps the yields are disappointing, as well, on what has been harvested?
Weather is as erratic as the market, with decent rains now forecast for the western Corn Belt the next seven days, while the Eastern Belt is favored in the eight- to 14-day forecast. So there is about normal precip now forecast when you sum it all up. Temps are still above average in the central and western Corn Belt, but actually normal to below normal in the eastern Corn Belt the next 14 days. This is cooler and with a bit more moisture and, thus, more favorable than it was just a few days ago.
Looks like it’s another critical time for the grain market, with a decision now for traders on whether they should trade the market like it’s a top (with weather improving and a good start to the 2018 crop). Or is this just a fluctuation in the grain markets like the last few swings? Even weather forecasts are participating in the swings, so is this a permanent swing to a more normal forecast? Or do we swing back to warm/dry again in a few days or a week, when temps start to heat up and rain stops falling?
Will we ever make a trade agreement with China? Secondly, does it really matter? The country wants our product anyway, and we want to sell it.
If not for the other factors being discussed complicating things, grain trade seems to be a simple matter.
Ray Grabanski can be reached at firstname.lastname@example.org.
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years.
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