If you hunted the internet for grain commentary this week, like I do regularly, the theme of all writers is similar: Somewhere ahead lies the bottom. We don’t know when it will come, but we know it is a long way from breakeven.
It has long been said that misery loves company. There is a lot of company to be had this week, exemplified by one article I saw about frustration in the heart of one Illinois farmer.
She was frustrated with working hard pulling a certain noxious week out of soybean fields at the same time she was discouraged about the price levels she sees. Her father was encouraging her by telling her how that is part of the business, and the family and farmers in general have to hang tough.
Writing about discouraging prices below the cost of production always reminds me of I Corinthians 9:10, which says that the farmer “ought to plow in hope.” Again, in II Timothy 2:6 we are told that “The hardworking farmer should be the first to receive a share of the crops.”
I remember the plaque Squeeze gave me that said, “Pray for a good crop, but keep on hoeing!”
Unfortunately, I remember too many years when I did not have hope after the crop budget projected negative returns. My biggest hope involved seeing what was left after I covered fixed costs and realizing that the first share went to Farm Credit.
This is turning out to be another year when we are struggling with I Timothy 5:18: “You shall not muzzle the ox while it is threshing.” That is a picture of the ox not being allowed to eat the grain it is threshing, and it reminds me a lot of the 1980s in my part of the world. The worst thing about these Scriptures is that they remind us that farming, in principle, has not actually changed much in the last few thousand years.
There is little doubt that, if it were easy to get in and out of grain production, a lot of farmers would be at the exits this year. If we look hard enough, we can see sunlight in axioms being created this year, like, “Happy is the cattle feeder who buys his grain instead of raising it!”
Corn
It should not surprise us, as we hunt for the bottom, that the spec funds added to short corn positions this week. They sold 3,500 corn contracts, according to the Commitment of Traders report. However, they bought 5,000 soybean contracts in the same time. I don’t know if this is proof of bottom picking or just a reaction to a little bullishness in soybean markets from good export news.
After the fund position report Aug. 26, we had a pop in soybeans of 8 cents in the November futures contract. This was because of “technical buying,” which is a common term for the fact that some traders saw something on the charts that was more than just stirred chicken entrails.
At the same time, the corn had “technical selling” according to some sources. The market knocked a nickel off corn prices Aug. 26.
Levels of drought
If you are looking for a fundamental reason for the corn selling, as I always am, you can point to the amazing U.S. Department of Agriculture estimate that we will have a national average yield of 183.1 bpa this year. That is being helped by the forecast of up to .75 inches of rain coming to the Upper Midwest, and the fact that only 7% of the corn crop is in areas affected by drought. Of course, the same article that gave me that statistic also said that 21% of the corn acres were affected by dry weather, just not actual drought.
Put Ohio in the drought column. We are told that 59% of the crop in Ohio is being affected by dry conditions. This would be why I got a call from a Somerset, Ohio farmer last week in which he mentioned the corn was being hurt by drought there.
On the whole, however, the eastern states are showing yield potential greater than the USDA predicted, according to the Pro Farmer Crop Tour that finished last week. There, participants noted that some Corn Belt acres were worse than predicted, but the eastern states were better.
Notable, according to them, was Minnesota. They say the crop there is struggling and looks rough, but USDA says they will have as good a crop as last year. Pro Farmer puts the nation’s crop at 181.1 bushels, lower than USDA, but not by a lot. Their yield would result in a production of just under 15 billion bushels. That yield would get carryout below two billion bushels.
Pro Farmer puts the soybean crop at 4.74 billion bushels, from a yield of 54.9 bpa. That would add 140 million bushels to ending stocks. In this case, the Pro farmer numbers were bearish to soybeans, but prices actually went up Aug. 26.
Trading
Chicago wheat traded a close below $5, at $4.98 last week. That means we are trading all three major commodities below the nice round numbers that we used to think were price floors. December corn futures were at $3.87 late Aug. 26, and November soybeans were at $9.80 3/4.
It is a little scary that the most optimistic piece I read this week was from a farmer glad that she followed a disciplined marketing plan. Early, when she prepaid some fertilizer, she sold some grain at what she hoped was just a starting place. It ended up being the only grain sold at a decent profit.
The award for best article of the week should go to Bruce Knorr with Farm Progress. He went into detail about the difference in price trends between election years and all other years. Additionally he charted price trends that showed when we could expect some trend changes.
His thesis was that election years brought the uncertainty of “tariffs, taxes and trade,” based upon policy changes. His charts indicated that corn futures tended to continue lower into December, but that in election years, the turn tended to come in October. In soybeans, the trend change seems to come as early as October.
The same article talks about the October surprises that we have seen on Wall Street in the years of 1869, 1929, 1987 and 2008. This week, we set a new record for the Dow, well above 14,000.
In 1970, I lived in India with a small investor. If I remember one Michelob moment correctly, he was struggling with the idea that the Dow might get to 3,000. Surely, I could have found a few backs along the way to invest in the last 55 years!
