Recent market movement reminds me of the old axiom that “the cure for low prices is low prices.” Last week, I mentioned the adage that the low was in when everybody agreed the market had to go lower. The reason was that, in commodity futures, every seller has to have a buyer. At some point, if everybody agrees the market should go lower, it can’t.
At the bottom of any market move we see the results of a mood change that cures low prices. At some point, users of the actual cash grain get the idea they ought to get some coverage for their cash needs. They buy hand-to-mouth until the prices seem cheap enough that they will kick themselves later if prices turn around.
If enough feed mills and ethanol plants have managers thinking this way, the change of trend becomes self-fulfilling. That is, the buying kicks off a rally. This may be part of what we are seeing over the last few days.
Flimsy
Now that we seem to have turned the trends back to the bullish sides, traders are looking for reasons why, beyond a change of mood. Reasons do exist, but they are flimsy. Yes, the U.S. Department of Agriculture Crop Progress Report the afternoon of July 22 lowered the corn condition by 1%, to 67% good and excellent. The estimate for Ohio is 65%.
Then, we have weather forecasts for drier conditions as we go into pollination and grain-fill stages of corn growth. And, we hear talk of increased unevenness in areas of the country with saturated soils. The last hurricane started this trend, and continued rains in some areas added to the problem.
For whatever reasons, whether from a change of mood by the users or by some real or flimsy weather reactions, we have seen some big changes. After big losses last week, we posted large gains in prices July 22. September corn futures gained almost a dime. December futures gained one tick more than a dime. September soybean futures gained 32 3/4 cents. Chicago wheat futures were up over a nickel, even with no change in crop condition according to USDA.
If this is a real trend change, we only know it after several days of gains. In fact, corn was fractionally low in the overnight trading into July 23. Soybean futures are a couple of cents higher right now. Chicago wheat futures are actually a nickel lower. This means that the market is teasing a change of direction with big gains July, but we have no confirmation. This could be just a pause in the downtrend.
We have seen big losses over the last couple of months as USDA reported surprisingly high corn acres near the end of June, and the weather has been perceived to be ideal for crops. That perception is confusing right now, with the conflict between current hot and dry forecasts and the current idea of record yields.
Added together, we have the idea that we have some crop problems. The trouble is, at the same time we see people talking about corn yield averages of 184 bpa and soybeans yields of 53 to 54 bpa. Those yields do not reflect any large areas of crop problems.
Momentum
That gets me back to thinking we are just seeing a change in momentum. We have seen huge negative price changes over the last two months. Corn futures lost nearly a buck since the middle of May. On May 14, we saw $4.84 1/2 for September corn futures. We had a low of $3.89 1/2 July 15. We bounced above the magic $4 round number July 22, but were trading a tick below $4 in early trading July 23 on the overnight session.
November soybean futures traded a high of $12.22 3/4 May 6, but posted a low of only $10.39 1/4 July 19. That is a loss of $1.83 1/2. Then we have the truly ugliness of Chicago cookie wheat futures. From the $7.39 1/4 of May 24, we have dropped to $5.25 1/4 July 16. We have rallied from that, to a current $5.42 1/2, but the drop was $2.14 before the recent rally.
The rally may have been sparked by a reported drop of 5% in the condition of France’s wheat crop. The specs still added to short positions to the tune of an additional 6,749 contracts.
The Friday Commitment of Traders Report showed that spec funds have lightened their record corn short position by 10,587 contract of futures and options. They are still short 343,936 contracts. The export report for the week ending July 18 shows we have moved 54.71 MMT in the marketing year so far, which is 97% of the USDA prediction. We have moved 98% of the predicted soybeans. The sales of new crop soybeans committed for export so far is only at 2.07 MMT, and that is the lowest in the last 20 years.
Conclusions from this mix of news are hard to come by. We have stopped the bleeding in corn and soybean prices, but it is too early to say there is a trend change. Yes, we see some weather problems ahead, but we often see reports like that this time of year.
Regardless of the forecasts, there are still record yield projections. The corn crop is likely made, where it is not flooded or saturated right now. The soybeans are not in doubt, but the critical August is ahead of us. Don’t bet the farm on a poor crop.
