After the Price Plunge, Expect an Upswing

September 23, 2011 09:02 AM
 

Grain and soy futures markets collapsed today, but analysts think this will turn out to be just one of the down days in continued volatile markets. 

“People were running out of all sorts of investments today,” said Chad Hart, economist at Iowa State University. “The only market you could argue was up was the U.S. dollar.”
 
Most Chicago corn, soybean, and wheat futures through 2012 dropped more than 30 cents. Live cattle futures plunged nearly $3, and lean hog contracts joined the declines. Major equity indexes fell and crude oil futures declined.
 
“What's been hanging over these markets for some time is the thought that either we didn't actually get out of the recession, or we are going into a double dip,” said Hart.
 
Rich Nelson, director of research at Allendale, Inc., McHenry, Ill., reached a similar conclusion.
 
“The big picture is yet another correction based on outside market pressure,” said Nelson. “The trade was disappointed that the Federal Reserve Bank did not provide a direct cash infusion into the economy. With that cash infusion, which would have lowered the value of the dollar, the dollar rallied.”
 
News stories in recent days about European debt struggles combined with news stories about the Fed, said Hart. “I think that just raised the bear sentiment. That spooked a lot of investors across the board.”
 

Opportunities Ahead

He and Nelson both expect volatile moves ahead to offer selling opportunities for crop producers and buying opportunities for livestock and poultry feeders and other users.
 
“The key message we'll point out is that all the corrections in the past year that have happened based on outside market influences, not grain fundamentals themselves, have failed to keep prices down,” said Nelson. He expects the potential low for the current correction may come about Sept. 26.
 
“The fundamentals are still firm on soybeans,” he says. “Not as extremely bullish as corn is, but certainly much stronger than current prices reflect.” He expects higher prices for soybeans to resume, but not until October. “We don't expect a retest of the highs on soybeans, but we do expect to see soybeans over $14.”
 

Seesaw Markets

Hart expects seesaw markets in corn, soybeans, and most commodities, as prices respond to positive and negative economic news.
 
He also expects corn and soybean markets to take some signals from fundamentals, but says the prospects for corn and soybean crops are less certain than normal for this time of year.
 
“News on that end for crop markets had been supportive,” said Hart. “We have been looking at smaller crops. Now, we're seeing some reports of farmers saying the crop is a little better than they expected.” However, he added, early reports on crop yields vary. “They're like the markets: They're up and they're down.”
 
Asked how he would advise growers to market soybeans, Hart focused on margin. Even after the prices dropped, November futures were still near $12.80 and basis in Iowa put cash prices higher than $12/bushel. Iowa State estimated this year's production costs at less than $10.
 
“So this is still a very good price for soybeans,” said Hart. “It's not as good as a week ago,but we’re still talking about profitable prices for corn and soybeans.”
 
May futures are still carrying a premium of about 25 cents over November. “The market will pay a little bit to store the crop to spring.,” said Hart.
 
He expects volatile markets to continue.
 
“That doesn't mean we'll get up to where we had been but the market probably will bounce higher,” said Hart. “Take advantage of opportunities.”
 
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