Last week, I commented that it seemed like futures traders were ignoring some fundamental factors in the grain markets. This week, the frustration seems to be that we got actual new numbers in grain markets in the form of grain stocks and acreage reports, and those were viewed as negative to corn prices. The problem was that the traders were willing to treat them as negative and take prices lower.
This seems to be a market that wants to be lower, either in opposition to news or in confirmation of it. We are a long time from proving what corn and soybean crops end up being in North America, but we are close to knowing in South America, and the market is now ignoring problems in North America.
USDA reports
The U.S. Department of Agriculture watches 18 states for planting data, crop conditions and yields and publishes a report each Monday afternoon. Little changes in crop condition, for example, can change market prices. USDA also regularly publishes estimates of grain stocks, which is the quantity of grain existing in farmer and commercial hands. On June 28, we got the grain stocks estimate and also an estimate of planted acres for the individual crops.
The grain stocks for corn and soybeans were a little higher than expected by traders. No big deal, but in the wrong direction to help prices. The market mover was the acreage report. The planted corn acreage, which was last reported at the end of March, came in higher than the trade expected. The average trade guess for corn for grain was 90.3 million acres, but USDA reported an estimate of 91.5 million acres.
True or not, this rattled the trade. They will be forced to “trade” that number now. That is, they will trade futures with the assumption that USDA is correct. This changes the balance sheet and increases the amount of estimated “carryout” bushels at the end of the marketing year. Our carryout was already higher than desired by anyone wanting higher prices.
The result was a continuation of the lower prices on the Chicago Board of Trade. A few months ago, analysts were talking about harvest corn prices declining to $4. That would have been a great price a few years ago, but it is a potential disaster now because of the huge run up in production costs in the last few years. Now $4 corn is below the cost of production.
Trends
Let’s look at trends. We are now following September corn futures as the lead month, since July futures are now into the delivery period (they become a cash contract, with sellers obligated to deliver to certain Illinois River terminals). The recent high for September corn futures came May 14, at $4.84 1/2. This price came in the rebound that came after the first round of $4 corn talk. That talk, centered on smaller corn acres and yields in South America, went away, and we have been falling rapidly in the six weeks since then. The evening of June 28 we closed at $3.99 1/2, a loss of 85 cents in six weeks. Yuck!
Futures
I am following November soybean futures, mostly because most farmer beans have been sold and because there has been a strong tendency the last few years to go from July futures right to November for basis against current cash purchases. This is especially true if the markets are inverted (nearby months are higher than the deferred month). That is not true right now, but November is significantly lower than August or September futures right now.
November soybean futures had a recent high of $12.30 1/2 May 7. The recent low came at $11 June 28, after the recent USDA reports. We had a 25-cent range that day and closed at $11.04, near the low, but only down ¾ of a cent for the day. The September corn futures were down 11 cents June 28. The trend for soybeans has been down as sharply as corn, having lost over $1.30 in the last seven weeks.
It will be interesting what July 1 brings. By the time you read this, you will know. Corn acres are now thought to be down 3% over 2023 (but higher than expected by the trade, remember). Interestingly, after early talk that soybeans would gain acres from crops other than being all from corn, soybean acres were reported to be up the same amount, 3%, that corn acres were down. It could be thought that soybeans should be up in price as much as corn was down. Did the June 28 market trade the corn and ignore the soybeans? Will soybeans be higher July 1? Will the prices of the two crops diverge?
Weather
Now, let’s go back to weather. The market still seems to be ignoring the problems that many farmers report. First, let’s mention that northeast Ohio seems to be the corn garden spot of Mid-America. I was told tonight of corn that is in fabulous condition, being 6 and 7 foot tall June 30. Soybeans are good, but not great. Meanwhile, I was also told today that the Lower Missouri River is about to flood, and much of the best river bottom farming in the northwestern Corn Belt will be destroyed.
Corn and soybeans die after 24 to 48 hours under water. Corn plants are like diesel engines — the number one requirement is for oxygen. Add to this the high river conditions on the Upper Mississippi that comes from excessive rain into saturated fields. Parts of Southern Minnesota got 7 to 10 inches of rain last week.
On the other hand, dry conditions have been the story for the last month in most of the Corn Belt. The exception is the ECB, where conditions have been great after some rain delays in the early planting season. All of this would seem to mean that much of the Corn Belt would have reduced yields, but markets do not reflect that, maybe because futures traders look at USDA numbers as real, and look at weather models as farmers whining.
