The ugly period of agriculture is behind us, analyst says
The soybean market has run to two-year highs on weekly charts at $9.60, quite a turnaround from earlier this year when we had our pandemic free fall into April.
The grain markets haven’t had the same recovery as stocks (which are near all-time highs), but since the Aug. 12 report, it has also been quite a recovery.
Corn is also at postpandemic highs, rallying to the summer high of $3.60 Dec futures before pausing this week. But a combination of factors is turning what, just a few weeks ago, was termed a bumper crop into an average crop, at best.
First historic winds across the central Corn Belt, then intensifying of drought yield losses as soil moisture ran out, and now cold weather sweeping in could still have more yield ramifications. Quite honestly, yield potential is dropping at rates as fast as any drought we’ve had – it just started later in 2020, so the impact won’t be as severe.
Weather forecasts call for more bouts of dry weather, with virtually all of the Corn Belt to see below-normal precip for the next two weeks. On Tuesday, it rained in Arkansas and southern Missouri, and the next seven days above-normal precip will fall in Oklahoma, Texas, Arkansas, and Louisiana. But the rest of the country will see below-normal precip the next seven days, and also in the eight- to 14-day forecast. Temps will be below normal in the Corn Belt the next week, and then turn much colder for a much below normal temps forecast in days eight through 14. We likely will have frost in the far northern areas by Sept. 10 – about two weeks or more early (the crop seems about one week ahead of normal). So, there is still adverse weather in the forecast.
Markets rallied up to resistance lines to end the month of August, at $9.60 soybeans and $3.60 corn, and promptly sold off. There was some follow-through weakness overnight, but soybeans recovered as they had their worst showing in yield models of the summer, Monday, dropping 0.64 bu/acre to
50.12 bu (vs. USDA’s ridiculously high 53.3 in August).
Our yield model has dropped 1 bu/acre since the Aug. 12 report (83 mb) and is now 3 bu below USDA’s crazy guess (249 mb). The carryout in soybeans is rapidly disappearing!
Soybean crop conditions declined 3% to 66% G/E (still above last year’s 55%), while corn declined 2% to 62% G/E (vs. 58% last year). The Pro Ag
corn yield model was down another 1.25 bu/acre to 177.2 bu, now down 4 bu since the USDA report (336 mb) and down 4.6 bu from USDA’s Aug guess.
The interesting thing about corn is that feed use is also going to have to rise rather dramatically because cattle will be taken off pasture early due to the western U.S. drought. Nowhere in the country has the drought been worse than the western U.S. – where almost all the cattle grazing land resides. Pasture and range condition have dropped nationally to 22% G/E, well below last year’s 53% rating and near the worst in the last few decades. No question: Feed use of relatively cheap corn will rise to make up for this shortfall in pasturelands.
We note that crop development is ahead of normal about three to six days, with soybeans 95% podding (2% ahead of normal), and corn 63% dented (7% ahead).
Yet, the cold weather moving in could threaten to end the northern Corn Belt growing season one to three weeks early. Even though the crop is early, the frost date is still very important now that exceedingly cold weather is forecast to move in.
We also note that many crops’ condition ratings declined last week, with cotton down 2% (to 44% G/E), sorghum down 4% (54%), and corn and soybeans. HRS wheat is 69% harvested (8% behind normal), with barley 74% harvested (9% behind) and so far yields are average at best as heat and soggy soils drained yield potential all summer.
Topsoil moisture nationally is now at 50% adequate/surplus (up 1% this week), while subsoil is 52% (down 2%), with both well below last year’s more ideal situation.
There is no question that the ‘bumper crop’ of 2020 has been reduced in August to basically an ‘average crop,’ but it is still declining rather rapidly. So, we could actually end up with a below-trend yield in both corn and soybeans. Quite honestly, the market price action has already told us that.
Ugly period over?
It’s also quite possible that we may have formed a long-term bottom in grain prices over the past two years.
These two years were miserable, indeed – but it is time to start thinking about that ugly period being behind us.
If you look at the technical charts, you would have noticed (as we have been saying all summer) that long-term wheat charts bottomed in 2016 (CBOT), corn has a double bottom from 2016 that was matched in April 20, and soybeans a head-and-shoulders bottom (left shoulder Aug 18, bottom May 19, right shoulder April 20).
These are quite bullish formations on the long-term technical charts, which typically the most reliable signals.
It has become more and more likely that the agricultural depression of the past two years is over!
Ray can be reached at firstname.lastname@example.org.
Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country. See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com.
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