Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
September 4, 2015

Farmers face unprofitable prices and uncertain yields as they get ready to start harvesting 2015 crops.  But production this year could help determine whether corn and soybeans have a shot of getting out of the red in 2016.

Farm Futures first survey of 2016 planting intentions showed growers ready to plant more soybeans and corn. Producers said they were ready to put in 89.7 million acres of corn, up a little less than 1% from this year. Soybean seeding could rise almost 2.5% to 86.3, another record if achieved.

While growers will cut back on wheat, they plan to seed more sorghum again this year. Cotton acreage could also rebound after weather trimmed acreage this year.

Though prices are down, the cost of fertilizer and fuel should be lower. Farmers in many countries have less purchasing power due to weaker currencies, limiting their ability to import nutrients. That could help support exports of U.S. crops, though overall trade could continue to lag if the troubled international economy doesn't recover quickly.

While corn and soybean acres could rise in the year ahead, stocks might not be burdensome if yields are normal and 2015 crops turn out smaller than USDA's initial estimates. Domestic usage of both crops is solid, though exports are off to a slow start as the new marketing year begins. Soybean booking began to perk up a little in August, but remain at three-year lows. Corn sales are the lowest in nine years, though slow early sales don't always portend a bad year when all is said and done.

A strong dollar could affect corn prices, restraining their rebound to keep U.S. originations competitive on world markets. The value of the dollar doesn't affect soybean prices as much, but what happens in China does. If the world's largest country continues to struggle, growing demand enough to soak up large global supplies could be difficult, keeping prices low. That could make profits elusive even if carryout falls modestly.

While a lot must break in corn's favor, there's a chance for a small profit in 2016, assuming normal yields. Soybeans still look like they could be in the red another year unless production falls sharply in South America. Growers in Brazil should seed more acres, but yields could be lower because imported fertilizer and chemicals will cost more due to the low value of the country's currency, the real. Weather is also an issue, because the El Nino warming of the equatorial Pacific could affect production too.

Forecasting prices more than a year in the future is fraught with peril. But growers must make some decisions on 2016 soon, no matter how tentative the outlook is.

Corn prices posted their lowest close during the life of the December 2015 corn contract in the days before the Labor Day weekend. Cautious trade was amplified by the approach of USDA's next estimate of production, supply and demand due Sept. 11. The agency likely will keep its forecast for 2014 ending stocks unchanged, and a cut in its production estimate for 2015 could help corn put in a bottom.

Otherwise, there's little to keep December futures from sliding to new contract lows, targeting a price chart objective around $3.47. Turbulent world markets could create additional headwinds, especially following a confusing jobs report for August. While the U.S. unemployment rate dropped to 5.1%, employment growth slowed. That clouded monetary policy options for the Federal Reserve, which meets Sept. 16 -17 to discuss raising interest rates for the first time since 2008. Still, the futures market put the probability of a rate hike at 80%.

Early results from harvest in the eastern Corn Belt could also swing the trade. But with yields highly variable from one end of the Midwest to the other, it likely will take time before a verdict in is.

Soybeans took a breather from volatility ahead of Labor Day, but only because markets in China were already closed for a two-day celebration of the end of World War II. Soybeans and the Chinese stock market developed a strong correlation in August. As stocks plummeted in China, so did the price of U.S. soybeans. That's hardly surprising, because China controls around two-thirds of world trade in the oilseed.

The other question hanging over the market is the size of the 2015 crop. That debate won't be settled soon. USDA isn't likely to change its estimate of acreage Sept. 11 and that's where the market could get its biggest surprise.

The size of the U.S. crop could determine whether the average cash price for soybeans is $10 or $8.50 in the year ahead. But in either case, making a profit won't be easy.

Wheat prices made more contract lows as September began. A series of export deals in North Africa done at very low prices suggested a market still search for value as sellers cut prices in a race to the bottom.

Still, not everything was bearish for wheat, though moving prices higher likely will take time. Growers in the U.S. will plant less starting this fall, according to Farm Futures survey of planting intentions. Dry weather from Eastern Europe through the Black Sea region could threaten production from a key export competitor. El Nino also appeared to be affecting hopes in Argentina and Australia.

Until end users feel threatened, however, U.S. exports likely will stay modest, keeping prices under pressure.

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