Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
October 21, 2016

USDA reports are often big market movers. Sometimes the data confirms expectations for bullish or bearish trends already in play. Other times surprises shock markets into a change of direction.  It’s little wonder, then that growers like to grouse about the accuracy of these estimates.

The agency’s chief economist only added fuel to these fires after release of the latest grain stocks report. Rob Johansson said the response rate for that survey dropped to an all-time low of 66.5%. USDA used to get response rates as high as 79% he said.

Accuracy of these surveys was a prime topic of discussion Oct. 18, when the agency held its annual meeting for data users in Chicago. In their comments during the meeting, and on the sidelines during a break, USDA statisticians had to dance a careful two-step. While acknowledging lower response rates, they maintained accuracy of the estimates is good. Yet they also said farmers may be hurt by low responses in some areas.

Despite the lower response rate for the stocks survey, Lance Honig, head of the crops branch of USDA’s National Agricultural Statistics Survey, said the agency generally is able to get answers in the low 70% level. The agency also does studies of those who don’t respond to make sure their answers aren’t affecting the data quality.

Perhaps most significant: Though USDA’s response rates are down, they aren’t down as much as the falloff experienced by other researchers. Presidential polls are likely to be based on just a 10% response rate at best, for example.

Academic researchers who have looked at USDA’s results point out that all surveys have error. University of Illinois economists said it’s “simply a fact of life, sometimes overlooked” by those who use the results.

These surveys can provide pain, however, with some unintended consequences for those who don’t participate. Under the ARC County farm program selected by most corn and soybean growers, payments are made based in part on countywide yields. There have been complaints about low yields that reduce potential payments. In some cases these counties just had lower yields. But in others lack of data forced the government to base its yields on other ways of estimating program yields.

USDA’s next production survey comes out Nov. 9. By then the reliability of presidential polls this year will be known. Questions about USDA’s results will likely still be heard.

Corn prices appear to have made harvest lows early this year, bottoming on the last day of the 2015 crop marketing year, Aug. 31, when September futures went into delivery. Since then the December contract traded in a channel that’s had more ups than downs, rising by more than 40 cents.

Traditionally, corn futures tend to trade in cycles of eight to 10 weeks. If that pattern holds the market could face pressure into the first week or two of November. Whether the uptrend holds could depend on fundamentals of supply and demand, including the size of the crop and export sales.

Other markets could also play a role, from soybeans to stocks. A rising tide of interest in Ag futures could lift all boats. But the influence of other markets is harder to gauge. Recently, corn has showed a tendency to rise and fall in tandem with the U.S. dollar. That’s the opposite of what normally happens. A stronger dollar could be a sign that investors don’t see much potential overseas and are looking for other places to put their money. If they bet on agriculture, corn could have an easier time extending gains.

Still, a rally to $3.65 to $3.68 December futures is a place to begin pricing grain. Move sooner if you didn’t make many sales on this year’s rally.

Soybeans traded in a range of around 60 cents since September contracts went into delivery in late August. November futures started to test the top of that band as their delivery process began to unfold, starting with expiration of options. But even a faint whiff of $10 was enough to bring some soybeans onto the pipeline, weakening basis in the cash market despite very strong export demand.

Bids at the Gulf, and up the river system for that matter, are weaker than normal, with processor prices also faltering in other areas. At the same time, carry between November and July futures is growing slowly, making hedging an alternative for those who can sell with futures or HTAs to protect inventory stored on farm until basis firms.

Cash should begin to strengthen soon. Export demand remains very robust, and there were no supplies registered for delivery against November futures as options expired.

Futures rallies may depend on South American weather. Rains appear to be returning to Brazil’s key center-west growing region, which are crucial for a big crop. Without a threat, U.S. prices may have to continue to undercut offers out of Brazil to maintain their share of the world’s business.

Wheat prices are in the eye of the beholder. Tight supplies of high protein wheat due to weather troubles in Germany and Canada boosted demand for U.S. spring wheat, taking Minneapolis futures to four-month highs. Demand for soft red winter wheat is poor, but supplies are tighter, too, encouraging big speculators to buy back some of their bearish bets. Hard red winter wheat supplies are huge, depressing prices even as export business picked up a little.

Lower acreage for 2017 should help stabilize the market into winter, when weather can become an issue. Parts of the western Plains are dry, and other production regions around the world face a few challenges too.

Big rallies are unlikely, however, so growers should be making sales to whittle down 2016 inventory, Using futures or HTAs to capture carry is one alternative to protect the downside while waiting for basis to strengthen into early winter.

Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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