Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
April 17, 2015

Farmers have plenty of reasons for not hauling corn right now. It's the second half of April, and time is of the essence for fieldwork and planting. Prices are lousy, offering little incentive even on days when weather keeps producers out of the field.

But growers are sitting on a record crop and eventually that grain will come to town. The floodgates could open when confirmation of good weather for pollination arrives. By then, end users will already be eyeing a good crop coming on, expecting to take advantage of a fire sale with bargain basement prices.

Yet stubbornness does have its virtues. Lack of farmer sales forces buyers to bid up cash prices to attract supplies. That strengthened basis to above average levels in many areas, despite all the grain that's still sitting in bins across the country.

Basis in the export pipeline strengthened a nickel in the latest week, with some gains doubling that advance. Ethanol plants, livestock producers and exporters burn through an average of 37 million bushels every day of the year. Most of that demand is a constant grind, which is working to farmers' advantage right now.

Basis likely won't fall apart quickly before the crop is up and growing. But it's providing an opportunity for farmers to make lemonade from a market that turned into a lemon.

USDA's March 1 grain stocks data showed farmers on average still had 30.8% of their crop on farm. That's actually a little below average. But because the crop was so big, the number of bushels was a record, almost 4.4 billion.

The grain was spread around the country differently, which could have implications for the basis break this summer. Farmers in many Corn Belt states enjoyed big yields in 2014. That includes Illinois, Indiana, Kentucky, Missouri and Ohio. Not surprisingly, the percentage of the crop on farm was higher in these states, reaching record levels in Indiana and Kentucky.

States in the upper Midwest didn't benefit from quite a strong yield bump. But even some of these states have a higher percent of the crop on farm than normal. This includes North Dakota and Minnesota, where logistical issues, including problems with rail service, created very weak basis over the late fall and winter.

Locking in some of the basis with a basis contract or by selling cash and buying futures or a call option doesn't ensure a higher price. But if futures rallies do come this summer, the strength of cash market gains will be muted by farmers ready and willing to sell.

Corn prices are stuck between a rock and a hard place. The rock is old crop inventory, which remains burdensome. More than 1.8 billion bushels could be leftover on Aug. 31. The hard place is the likelihood of another good crop for 2015.

Weather for planting wasn't terrific, but it wasn't terrible, either. Wheels started to turn in the heart of the Corn Belt, though growers will face setbacks from rain and cold weather. But if more than 80% of the crop is in by the third week of May, farmers will plant as many or more acres than they reported to USDA in March.

Long-term forecasts for summer also don't show much of a threat, though such outlooks are still more art than science. Nonetheless, modest expectations for rallies are in order. Just getting back to December futures high closing price from last fall near $4.40 won't be easy, and the market could easily fall short.

Another year of big yields could sink corn much further than many fear. Futures could tumble to $3.50 by July 4 if 65% of the crop is rated good to excellent, and that's just an average rating. Growers should make sure they can handle the pain of another year or more of low prices before passing up even modest rallies of 10 to 20 cents into early May.

Soybeans tested six-month lows before showing some grit. Crush was a record for March, and foreign customers keep buying from the U.S. despite a record crop from the U.S. Also supporting prices were ideas the 2014 was smaller than previously reported.

Still, plenty of beans should be around at the end of the marketing year Aug. 31. And, while farmers may not plant as many acres as feared, any increase in November futures now could lure more ground into production, especially of corn can't rally.

Soybean futures normally don't fall apart until summer, and rallies can pop up just about any time. History favors a rally, but that's no guarantee. If weather is favorable, it will be difficult to keep futures from falling below $9.

Wheat prices slumped to new crop contract lows in all three markets, thanks to a combination of lackluster demand and better growing conditions. Rains improved prospects for hard red winter wheat, and dry conditions on the northern Plains for spring wheat didn't raise much fuss. Overall production prospects aren't great, but neither is demand. News that Russia could scrap a tax on exports raised fears the U.S. will face even more competition into key markets across North Africa into the Middle East.

Australia proved a tough competitor into Asia this year. Continuation of that trend likely depends on whether El Nino returns to the threaten the continent's crop. If it does, it could be the first link in a slow turnaround for the market.

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