Head to Head: Low Signals

September 4, 2013 09:41 PM

Q: When do you expect to see market lows this fall, and what key indicators should producers watch that might signal a low?

History Sets Expectation

Kurt Barth

Kurt Barth
Marketing Consultant, Brock Associates

During the last 43 marketing years in the cash corn market, 46% of the lows have occurred in September or October. This year will only buttress that statistic.

USDA’s low yield estimate of 154.4 bu. per acre and a hefty 3.4 million prevented planting acres will likely support futures above the lows in the mid $4.40s. Eventually the long-term support at $4 will be tested.

Grain merchandisers have booked only a small a percentage of the coming crop. Our clients are heavily forward sold but relate that their neighbors are not. Farmers with full bank accounts and empty grain bins might elect to lock up what they can until prices improve, but there are a lot of bushels that have to cross the scales at harvest. The selling pressure combined with a yield in the high 150s will eventually drive prices lower.

When will the low hit? Markets overbought corn up to $8.50, and they will likely oversell it to roughly the $4 level. At that level, I would be a buyer, not a seller.

Soybeans are a very different animal. The timing of their lows will be similar, sometime during early harvest. What the low price will be is another matter. A late-planted, water-logged crop was slow to develop and is at risk of an early frost in some areas. If the crop finishes in good shape, look for lows between $10.50 and $11.25.

Demand, Frost Are Game Changers

Randy Martinson

Randy Martinson
Executive Vice President, Progressive Ag

Grains have been on the defense for the past few months. Selling has primarily been a result of good growing conditions and slowing export demand.

Since USDA’s August Crop Production report, grains have rallied, which will likely cause a more seasonal move.

Progressive Ag expects a low in corn to occur between $4 and $4.35. With the recent rally and the market being able to correct oversold market conditions, it’s likely  corn will test those levels. Look for the lows to occur sometime during the first 30% to 45% of harvest. By this time, we’ll know the U.S. yield potential.

Soybeans are harder to predict than corn. The wild card is export demand, which has resurfaced and helped this market recover. Soybeans were also on the bullish side of USDA’s report as it cut yield and acres. Soybean lows are projected to occur between $10 and $11. Traditionally, soybeans mark their lows around Columbus Day, but this year, it might be a week later because of the lateness of the crop.

Farmers should watch demand. When it starts to increase, that’s a key signal that we are close to a low. USDA has been good at reducing production, but until demand starts to increase, market lows haven’t been established. Early frost will be a game changer.

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