Grain market bounced early but could not hold gains
Jul 15, 2009
The market bounced today but ran into strong resistance and sold off into the close. There seems to be a growing concern amoung many producers that the crop is not out there. Obviously, I’m hearing from those who are missing the rains but overall I have to say the USDA crop conditions are leaning the right way. The crops are alot better off than we would have thought 45 days ago when it was wet and late getting in. The real problem for this crop is going to be growing degree days and how will the crop fill out. As I’ve suggested in copy several times, I have to anticipate some type of short covering rally and some bottom picking after the August USDA Supply and Demand report. The trades going to have a little weather premium in the market from late August to early September. If the frost does not develop and we have an Indian summer, the potential for October lows taking out the August lows is high as the excess inventory that can’t be stored on farm is flushed into the market.
This is great for the producer who has hedge protection in place, it’s great for the feed buyer who wants to get his yearly production locked up, it’s great for the producer who wants to start buying upside price insurance for 2010 and beyond sells. It’s only bad for those clients who are unsold and have to sell off the combine.
Looking ahead: My greatest concern is the crop yield is confirmed now and we push the carryover closer to 2 billion bushels. Producers end up storing some of last year’s crop and a larger precent than normal of 2009 into the spring of 2010. The market tries to rally but demand is stable at best, acres remain above 86 million since fertilizer price have moderated and producers simply don’t like changing production. The spring rally fails to excite farmers to move old crop inventory and sell new crop. The fear about El Niño prevents producers from selling $4-plus 2010 and 2011 corn. A normal spring develops. In the end farmers take corn out of the bin cheaper than then put in and storage cost is not covered. Producers are behind on selling 2010 corn and waiting into 2011 for some type of miracle to bail them out of a very tight financial situation.
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