Head to Head: Dormant Commodity Drivers

September 28, 2016 02:20 AM
soybean harvest2

Q: The grain markets have been digesting higher production estimates over the past few months. There does not appear to be a lot of optimism for prices in the immediate future. Can you point out two to three factors you are watching closely that could provide producers with better selling opportunities over the late fall and winter months, and perhaps the timing of this potential strength?

 Chip Nellinger
 Principal, Blue Reef Agri-  Marketing

Yield Trend Reversal Could Amplify Prices

The market’s overriding thought process assumes record yields in both corn and soybeans. There are a couple of things to watch for that could lead to some potential optimism as we get into the winter time frame.

On corn, a consideration as important as yield is the trend in yield estimates. The market knows USDA has more estimates before it arrives at the final national average corn yield in January. The September estimate came out at 174.4 bu. per acre, near the August estimate of 175, so the market will start assuming USDA is close with minor changes through January. 

If, however, USDA’s October estimates are lowered by more than a couple of bushels, the market might begin to fear the August estimate was incorrect and the crop might be closer to other private estimates near or slightly under 170 bu. per acre. That could push futures prices back toward $4.  

On soybeans, even a record crop does not build carryout to burdensome levels because of enormous world demand. Any small scare about South American production this winter could ignite a large rally in soybeans and would likely drag corn higher into planting. 

Contact Chip at cnellinger@bluereefinc.com.

 Brian Basting 
 Commodity Research Analyst,
 Advance Trading 

Implement A Strategy For The Unexpected

Price prediction is impossible because there are so many different supply and demand factors that influence the markets. Within each crop year, however, there are surprises that could support prices from current levels. 

The most immediate factor would be lower-than-projected yields for 2016 U.S. crops. Warmer-than-normal temperatures across the Midwest this summer might have limited corn yield potential, while increased incidence of soybean diseases, such as sudden death syndrome and white mold, could curtail output.

Another factor that could provide support is the worldwide transition from El Niño to La Niña. Past observations of La Niña weather patterns include drier-than-normal conditions across Argentina. If this were to be realized late this year or in early 2017, the negative impact on yields could serve to offset what is expected to be a significant increase in corn plantings.

Rather than attempting to wait for or predict when these events might or might not occur, 
an effective approach would be to use available marketing tools to design and implement a flexible risk-management strategy to manage price movement this fall. 

Contact Brian at bbasting@advance-trading.com

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee that the advice we give will result in profitable trades.

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Spell Check

nisswa, MN
10/1/2016 12:32 PM

  It is a good thing that grains have weather and government price supports to keep the prices off their backs. Livestock pricing models are absent of these and while they benefit in the short term from low grain prices, the cattle are bleeding red and the hogs are joining in the loss per head category.This article's verbiage spin is not at all uncommon after monthly reports and stock reports and acreage reports.The USDA has a strong tendency to serve cookies and milk to one or more of the grain's price after a report.Telling the farmer what you think he wants to hear is not a good marketing plan.


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