Grain Marketing Highlights – July 27, 2012

Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu

U.S. Drought Not Near Broken
The drought had not been broken by recent rains in the Northern Tier of the Corn Belt and scattered showers in the Eastern Corn Belt, as of Tuesday, July 24. In fact, noted climatologists are predicting the drought could linger into October. Crop conditions for U.S. corn and soybeans declined again this week as reported on Monday afternoon. The drop in crop condition ratings for the seventh or eighth consecutive week suggests very strongly that USDA’s 2012 production estimates for U.S. corn and soybeans can be expected to be lowered again in the August 10 release of the next supply and demand report.

The drop in commodity prices over the past couple of days has more to do with the actions of non-commercial traders than any perceived improvements in the weather. The commodity markets are highly volatile. Non-commercial traders drove prices to the point that there were no buyers. That precluded a sell-off on Monday and Tuesday of this week which should turn around once the fundamentals regain footing. For the most part, with the exception of the Northern Tier, the Corn Belt remains hot and dry with little chance of rain helping corn or soybeans make much, if any, recovery in yield potential.

The shortfall for 2012 U.S. corn and soybean production and the fact that the rest of the world (i.e., Ukraine, South America) will not have nearly enough corn to export to make up the difference implies that these markets remain extremely bullish. The correction experienced in these markets earlier in the week is being attributed to technical factors. It is too soon to suggest that these markets are anywhere near done rationing demand. Fundamentally nothing has changed. At some point in time two things could happen to turn the corn and soybean futures market to the downside: 1) demand rationing/destruction – where demand gets cut enough to begin the “short crop” price spiral downward seeking the equilibrium price where demand can be rebuilt. 2) A rain event that commodity traders interpret as a drought buster. Remember, it takes significantly less rain to break the market than it does to grow the crop.

U.S. and world wheat production has also garnered the attention of commodity analysts and traders with world wheat production falling short of original projections. Sizeable reductions are being made in wheat production forecasts for Kazakhstan, Australia, Russia, etc. This means that wheat producing countries throughout the world are now expected to have less wheat for export in the current crop year. The U.S. Drought Monitor released July 17 depicts most regions of the U.S. still under extreme drought conditions (http://droughtmonitor.unl.edu/). This week’s drought monitor map, updated as of July 24, will become available on Thursday, July 26. The map for this week is not expected to show any significant improvement over last week in the heart of the Corn Belt.

Bottom line: fundamentals remain bullish across the board. The commodity markets were engaged in a technical correction at the beginning of the week and have regained some of the losses incurred in Tuesday’s overnight and Wednesday morning’s trade. Volatility in these markets remains extremely high. This increases the risks involved in commodity trading. Corn, soybean, and wheat futures have recovered some of the losses incurred at the beginning of the week on Tuesday night and Wednesday morning. In e-trade on Wednesday morning, July 25 at 11:20 a.m. EDT Dec ‘12 corn futures were $7.88; Nov ‘12 soybeans at $16.07; and Dec ‘12 SRW wheat futures were bid at $ 9.14 per bushel. The strategy of scale up sales for new crop corn and soybeans should not be abandoned at this time.

For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.

Please Note: This is a fast moving market. Commodity marketing always involves risk. The current situation has added greatly to that risk. Carl is recuperating at home after cataract surgery on July 26. He will be checking the markets at home and can be reached at 302-690-1878.

 

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