The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.
December corn closed 8 ¾ cents lower today to finish at $5.02 holding that critical level of $5. A slightly wetter midday forecast and a stronger US Dollar Index were both factors in the price drop. As we progress into August the market could continue to take out some of the uncertainty premium they have built in. I think this is why we are seeing corn break while soybeans are still holding support. The market is pricing in a large weather premium for soybeans long before the critical month of August when beans are made. For this reason we want to keep plenty of downside coverage on your new crop beans. Wheat has been following corn lower but September Chicago wheat is still holding a fairly decent premium to September corn. Today’s EIA report was par with expectations for ethanol production/stocks and was not a major market influencer.
The USDA announced a new crop soybean sale to China for 165,000 MTs. The tightness of old crop soybeans has been a large supporting factor for the new crop as well. The corn-bean ratio is now at 2.56 to 1. This is historically high and the ongoing strength in this spread points to what I just mentioned regarding the extra premium beans are getting over corn as time progresses (see chart below). This is not due to a significant change in demand. It is from the change in the perception of supply. If we don’t get a large yield cut in beans as many are suggesting, and China doesn’t import 69 million mts as the USDA is suggesting, than this spread is probably overdone to the upside. Corn would have to rally against beans for this spread to come back into line. Another likely scenario in our opinion is that the spread trades lower but it happens in a bear market from soybeans falling at a faster pace than corn. Weather in August is still key for this spread so we will have to monitor the extended forecasts as we get closer. I am just pointing out that we can’t add a higher chance of a weather problem developing this year as we do any other year just because we have had three bad growing seasons in a row. Tomorrow morning we have export sales at 7:30 am. Analysts are estimating 450-650 soybeans, 1200-1400 corn, and 900-1200 wheat. Have a great rest of the week.
November Soybeans/December Corn