A notable article online from Farm Progress focuses on the paradox that weather reports are warning of hot and dry conditions that cover most of the Corn Belt and are forecast to return, maybe even for the month of July, but the futures markets don’t reflect any worry.
The interesting thing about this paradox is that the futures markets seem to usually love any prospect of weather problems. They, in fact, tend to exaggerate them, overtrade them and then retreat. Instead, the farmer view is that the weather right now is being ignored.
There is no doubt that weather conditions have not been ideal in the prime and marginal corn and soybean areas of America. The Eastern Corn Belt was wet early and now has been hot and dry, with limited cool down at night. This is a deadly set of circumstances for corn especially, and the hot and dry part of it is forecast to continue. The only moisture-comfortable part of the Corn Belt has been the upper Midwest, where excessive rain has actually raised the Upper Mississippi to levels that are lowering the loading of barges. I have read that, although I admit I just don’t understand how it works.
Corn
While the farmers are fretting, the futures markets have taken a corn nosedive. A couple of months ago, we worried that corn would go to $4 this fall. Then we saw some rallies in the markets, but the rallies have gone away. We are back talking about the disaster of $4 corn again.
We have seen in the last major cycle for corn futures a crop from $4.60 1/2 May futures June 13 to a low of $4.25 June 24. That is a loss of 35 1/2 cents in 11 days. If you go back to May 14, we were as high as $4.75 1/2 and thinking we would see $5 again.
This is not a market looking at hot and dry weather, but a market looking for a big crop and a raise in carryout numbers. It is a market looking at good worldwide supplies and cheaper corn elsewhere, especially in South America.
Remember, the U.S. is no longer the world’s leader in corn exports. The interesting thing about South America is that they do have good supplies of corn and soybeans, even though we have seen cuts in the crops there from weather problems, mostly flooding at harvest. The idea that is hitting some analysts, but not yet the market, is that the Argentinian and Brazilian farmers are not selling like they are expected to. Farmer movement has actually been slow and will remain slow as the economic conditions there continue to effect the value of stored grain.
It has long been a problem that endemic inflation problems influence grain movement. No farmer wants to sell grain early and then buy inputs for the next crop with inflated currency.
To fight this, we have seen special rates of exchange for grain sales. Right now, there is no released policy on these special exchange rates, so there is reluctance to sell. If this trend continues, we will see short-term returns to demand for U.S. exports.
Soybeans
American soybean futures were actually up over a dime June 24, but we have seen a big downturn recently. We were currently trading, the overnight going into June 25, at $11.27 1/4 on November futures. November futures will be our new crop futures with the August and September futures being ignored in recent years, and cash buyers frequently basing bids off the November futures. The recent high in November soybeans goes back to May, when we traded $12.30 1/2.
We were as low as $11.13 1/4 June 21, more than a dollar loss in a month and a half. These losses are coming not only when we are seeing tough weather conditions in the Midwest, but while we are getting confirmation of declining crop conditions. The June 24 crop progress report from the U.S. Department of Agriculture shows a 1% decline in soybean condition and a 3% decline in corn condition.
The good and excellent for corn in the country is now 55% good and 14% excellent. Last week, USDA rated the crop 57% good and 15% excellent. The Ohio corn crop is only rated 49% good and 16% excellent for a 65% total. The soybean conditions are better, but still declining. The U.S. shows 67% good and excellent this week, a 1% decline from the 68% of last week.
Summer is here, and we expect these declines when weather is hot and dry, but we expect to get some market reactions at the same time. It may be that those reactions are still ahead. It may be that the market believes that we have enough grain that the current and forecast conditions are no big deal until they get worse.
