Prices have declined sharply for all three major grain commodities in the last month. The record prices are gone. The reasons for this are not precise.
The rationales are predictable. What goes up must come down — this we have always been told. Timing is the issue. Does it go up until I price, then go down? Or, do I believe it has a long way to go, not price, and chase the price down without ever committing bushels?
These are the decisions that haunt us, and will for this season.
Late planting was the excuse for not cashing in on high prices. Then, as the late planting became critical, it was not an excuse. It was a valid reason.
Buckeye bust
Now Ohio producers are faced with an ugly reality. We will have a small crop, but the rest of the nation will not. Nobody is talking about great yields, as the stands are spotty everywhere, and we are not getting enough heat.
Still, the rest of the country finally got the acres planted. We did not. As a result, prices will stabilize below what we in Ohio need to make up for a small crop.
One rule of the grain business is that the farmer makes more money with a big crop at a small price than with a small crop at an inflated price. The inflated price is never inflated enough to make up for the lost bushels.
Supply and demand
Two months ago, the talk was that the tight old crop supply would lead to astronomical prices because we did not have the ability to ration demand.
That is, it used to be understood that the users of grain would find ways to cut usage with high prices. Cattle would get less grain, more forage. Livestock numbers would be cut. There would be fewer pigs in the “snout count.”
The new thinking was that the 600-pound gorilla in the room was the ethanol plant. The ethanol people were expected to be forced to continue production by the nature of their business. They would have no way to throttle back.
In fact, we now know that high prices can force a change in ethanol production. Plants in many areas are taking extended down time, some until cheaper new-crop corn is available. Our thinking was wr-wr-wrong.
Demand can be rationed, even in the liquid markets. The old rules still apply.
Add to this the uncertainty of Uncle Sugar continuing to support the liquid industry with blending credits and tariffs on sugar ethanol from Brazil, and you have sharply lower prices.
Futures
Corn futures are off more than a buck and a half this month. Soybeans are down a dollar. Wheat futures have lost $2.26 1/2 since the recent high May 19. In this process, July corn futures have moved from 7.99 on June 10 to 6.40 on the 23rd. The December contract had a low of 6.20 1/2 off a June 9 high of 6.20 1/2.
That tells you that the spread between the old and new is sharply narrower. That means the excitement in the old crop is going away.
Meanwhile, the July soybeans dropped from 14.10 on the 3rd to 13.00 on the 23rd. November beans lost more than that. There we had a high of 14.01 and a low of 12.93 1/2.
The new beans have not excitement, but rather the fear of overproduction from switched acres.
