We sometimes forget that grain prices have one overwhelming constant and that is seasonality. That is, underneath the price movement, the strongest factor to change prices is the time of the year.
“Normal” grain prices follow a pattern and any events that don’t fit into the pattern are aberrations. That is, we start grain marketing analysis by remembering what is normal and then adjust prices for non-normal events.
As we are getting through the harvest in this country, we are forced to realize that within the volatility that has seemed important for a short time has been a mostly normal season of crop production, with mostly normal price movement.
Seasonality demands that in a normal year, if there is such a thing, prices can rally in early spring if the weather is not normal or the government surprised us with acreage estimates in the March 31 report. If we have been assuming that corn acres would increase dramatically, prices for corn may go down.
That is what happened in early April, as the U.S. Department of Agriculture came in with corn planting estimates greater in acres than any guesses by the trading community. Soybeans were shown with lower acres to compensate since total acres tend to remain the same. The shock of the corn acres was what was traded; however, and the corn prices declined more than the soybeans increased in value.
Planting
Then, the market focused on planting. When much of the central and western Corn Belt was very dry, prices of corn and beans increased. Remember, futures prices are the market’s best guess of prices in the future. The guesses tend to be over-estimated at the beginning of a move, pushing prices over what they will be when reality is known.
As the weather straightened out and farmers took huge equipment to the fields to catch up on planting at the expense of sleep, we caught up with planting and prices went back towards normal.
Next began the guessing game of how much yield was lost by later planting. Agronomists estimate how fast the yields decline after the optimum planting date, but my theory is that the decline is partly due to compaction from farmers desperate to catch up who are planting soil that is too wet.
As equipment has gotten wider, and as we are now tilling far less than a generation ago, compaction is less even if we start back in the fields too soon. When I was farming with 16-foot equipment and making four tillage passes at least before planting, I was leaving a field that was solid with wheel tracks. Today, with 12- and 24-row planters, combined with minimum tillage, we are not driving down the whole field.
Then, there is the result of better varieties, which seem to shrug off planting date, drought and oversauration with ease. We talked all spring about how late and rushed our planting was in the West, but we only changed yield estimates a few bushels. Taken as a whole, the crop problems are never as bad as it feels for the farmers who worry about making a crop.
If we get through June without good crops, the high price for corn has been already seen on some planting scare in May. We talk about August weather making the bean crop, and that is true. We worried about it this year and then found out the beans were looking better than we expected, as we did not burn up with high temperatures in August and as most areas had timely rains. So much for higher prices.
Harvest
Now we are well through harvest, with 59% of the nation’s corn crop harvested by Oct. 22, actually 5% ahead of normal after we fretted about late planting. Seventy-six percent of the soybeans are off, 9% ahead of normal.
Ohio is lagging the rest of the country, partly because of late planting and partly from untimely rains at harvest. Ohio has 20% of the corn off, just 3% up from the week before. That 20% is the worst harvest pace of any of the 18 states that USDA watches for this report. We have cut 64% of the beans, exactly the average for this date.
Yes, there are large areas of poor crops, especially in the central Grain Belt, that were too dry for too long. But, there are always poor areas. Check your morning market letters this week, and I bet they all were talking about prices declining because of “harvest progress.” That is, the harvest is coming off fast and the result is lower prices.
Our seasonality means that the harvest low comes ahead of a forecasted big crop. The low comes toward the end of harvest as the crops appear to be better than expected. That is where we are now.
We have a quarter of the soybeans and a third of the corn to go and most farmers are pretty happy with the yields. It is the last third of the crop that tends to go to town, away from on-farm storage. This happens as the farm bins are filling up with more bushels than we had hoped for.
The decline of prices as the crop goes to town is a result of the mechanics of marketing. As the farmer sells grain at the elevator or processor, the user sells futures to hedge the purchase. That pushes the price down as there are more sellers than buyers. Cash marketing overwhelms the speculative bushels at a time when the farmer is selling his excess.
The result of our crops ending up fitting the seasonal pattern is that, as we are working on our harvest low, we are seeing corn futures prices below $5 for December and soybean futures trading below $13 for the November contract. Those are great prices if only this were still 1980. It is not and the high cost of inputs makes historically good prices not so good at all.
Looking at some specifics, December corn futures are traded on the evening of Oct. 24 at $4.89 1/4. We had a high three months ago at $5.72 1/4. That sounded a lot better, but I bet most farmers were excited by the run-up of prices in July and were holding out for $6. I bet those same farmers still have not sold for a dollar less.
November soybeans were trading on the evening of Oct. 23 at $12.85 1/2. Three months ago they were $14.35. Did you sell then?
We had a low of $12.82 1/4 Aug. 8 and then rallied to $14.09 1/2 by the end of August. In other words, we got back near the high. It did not last long.
The recent major report day of Oct. 12 was disappointing for both corn and beans. The fundamentals favored the beans, as the USDA told us to expect fewer beans. The market traded the higher supply and crop of corn; however, the beans went along for the ride. By the end of the report day, beans were back down to $12.50 1/2.
After all the talk, prices were never far off what we could have expected from just watching the seasonality. A lot of talk, little real change.
