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Grain Marketing Mind Games?

16:24PM Aug 13, 2014

The trade isn’t sure it believes yesterday’s numbers from the USDA.

Double-ear stocks. Bin-busting yields. Picture-perfect growing conditions. It all adds up to a bumper-size corn crop this fall, according to American farmers.

But the USDA isn’t quite ready to embrace everyone else’s expectations. While the trade expected yesterday to bring a forecast of upwards of 14.2-billion bushels for this year’s corn crop, the monthly report was more modest, projecting closer to 14 billion, with yields of 167.4 bu./acre versus the 170 expected.

Yeah, right.

The minimal rise that the USDA gave us yesterday for the corn yield is somewhat hard for me to believe considering the abnormally low temps and improved rainfall totals we have been experiencing," says Kevin Van Trump of Farm Direction. "… [T]he market isn't buying it and believes ‘total’ U.S. production is going to work its way higher, [perhaps through] increased ear weights" or other yield boosters.

Van Trump also wonders about demand for corn, which the USDA expects to increase, thanks to ethanol, meat production, and more exports. "The trade currently seems a bit skeptical in regard to the USDA's latest jump in ‘demand,’ thinking it's overly optimistic," he says.

Given those factors, he expects "lower highs and lower lows" for corn in the weeks to come.

But not everyone agrees. "I have seen analysts writing that the lows may now be in while others say that this now sets the stage for new lows," says Ted Siefried, the chief market strategist and vice president at the Zaner Ag Hedge Group. "For the most part the trade is now very much divided about yield prospects this year."

Grain watchers are also divided about the price prospects for corn and soybeans. "The bottom line is that this report has sparked many strong opinions about where the USDA and markets could go from here," Seifried says. "…This report was expected to be bearish, and it was, but was it as bearish as expected? Now the market has more to talk about then just super-sized yields. It will be interesting to see what the next few days bring after December corn fell just one tick short of putting in its second key reversal in less than two weeks."

"One thing is clear," he says. "The bulls and the bears now have something to talk about."

They’ll also have to practice their patience and pay attention to the weather forecasts. "Looking past the USDA report, the trade will have to bide its time until next month’s report," says Paul Georgy, the president and CEO of Allendale. "The concern over an early frost due to cool temps and slow maturity of crops is on traders’ minds."

But the size of the crops in corn and soybeans may reduce those worries, further depressing prices.

"I suspect that after [Aug. 12 USDA report], the market will have already tucked these numbers away and will focus on the weather to complete this crop and the impending harvest," says Dan Hueber of the Hueber Report. "Regardless of weather, we know that around 14 billion bushels of corn and over 3.8 billion bushel of beans head into the pipeline and the bin. There will continue to be the risk of a surprise --i.e., another upheaval in Ukraine or possibly the talk of frost--but I have to believe, most feel that the crop will grow a bit larger, not smaller moving ahead so I suspect we have yet to find our lows."

In terms of the numbers, corn barely budged Wednesday, closing at $3.58 for September delivery. Soybeans slid 14.6 cents, ending at $10.794 also for September delivery. Lastly, Septwheat fell, dipping 10 cents to $5.28.