The corn and soybean markets finished the week with very modest gains, while the wheat market closed slightly lower for the week after a strong recovery effort on Friday. The wheat market was able to find late week strength from rumors of a Russian export tax of 30%.
Meanwhile, the corn and soybean markets chopped mostly sideways this week as the attention is now squarely focused on next Friday’s USDA updated production estimates.
An estimate released early on Friday projected the corn yield to fall to 114 bu/acre and a soybean yield of 35.8 bu/ per acre. With the averages trade guesses to be released next week, it appears likely that these estimates will set the lower end of trade ideas.
We are looking for corn yield to come in at 125 bu/acre with a production estimate of 10,863 billion bushels. Our soybean estimate is 39.0 bu/ acre with a production estimate of 2,925 billion bushels. The markets have aggressively factored in the yield loss to this year’s crop over the past month and a half.
Over the previous 5 weeks the average weekly gain in December corn was $.58, while the last 2 weeks has seen mostly sideways trade. This is a function of a market that has found a level in which significant demand destruction is occurring.
The question that is now debated is whether the demand destruction is significant enough. That question will likely be answered next Friday. With sharply lower production estimates hitting the market place on a near daily basis, I believe that it may be difficult to continue to extend the recent grain rally following Friday’s updated supply and demand data.
In addition, there continues to be growing chatter of a change in the current ethanol mandate. Although that process will likely be slow and difficult, especially in an election year, the EPA will have fresh and perhaps startling data in which to analyze in the coming weeks.
The market does not need an actual decision in regards to the ethanol mandate to begin a reasonable correction, only evidence that it will be taken under serious review. Producers should strongly consider extending hedge coverage or protection of their insurance payment leading up to next Friday’s report as well as be prepared to reward any rally following its release.