Grains Setback After 3-Day Rally; Outside Markets

Published on: 18:43PM Oct 21, 2008
Dec Corn
-7 ½
Mar 09 Corn
427 ¾
-8 ½
Nov Beans
Jan 09 Beans
915 ¼
-25 ½
Dec Wheat
-14 ½
Mar 09 Wheat
-14 ¾
Dec KC Wheat
-13 ¾
Dec Min Wheat
629 ½
-13 ¼
Dec Meal
Dec Bean Oil
The Bottom Line:
1) Corn harvest continues to fall behind pace
2) Financial markets are still trading in a range as they try to find direction
) Basis levels are firming in response to the sharp break in flat price and lagging harvest pace
4) Export demand continues to pick up
The corn market closed lower. Corn could easily stay in this pattern through harvest. It will continue to be difficult to maintain rallies for more than 3 days. We are in the middle of harvest and there doesn’t appear to be any reason for prices to rally sharply or break sharply from these levels. Old crop corn spreads have started to narrow and I would expect this trend to continue especially if corn prices stay at these levels or lower. Farmers have already seen much higher prices and to get cash corn to move this winter, we might have to see basis levels continue to firm up (paying the farmer more for grain now than in the future). 
There are a lot of factors to take into consideration going forward. Grain prices have broken considerably and this should help global demand remain strong through 2009. Currently, the USDA has bearish demand figures written down for both corn and soybeans. These numbers could be justified with $7 corn and $15 soybeans, but with current prices around 50% cheaper, these demand figures should probably be updated. Secondly, South American production is still an unknown. With credit problems around the world and sharply lower grain prices, global expansion will not be as large as would have been expected last July. And finally, input prices will be a big issue this year. 2009 prices are approaching break-even levels for many farmers. If fertilizer prices continue to fall this winter (which I expect), then corn should be able to maintain or increase acres at these price levels. If fertilizer prices remain at these high levels, soybeans should gain acres at current prices.


The soybean market closed lower. As with corn, soybeans were on a large rally during harvest and these 3-day rallies should continue to have troubles until harvest wraps up. I still think that soybeans will have put in their lows by the end of the month, but I do not expect soybeans to rally much over $10 for now. Demand is starting to pick up in the soybeans and this should start to provide some support. We are currently building in some very bearish demand numbers for next year. With grains 50% off of their highs and freight rates at fresh 5-year lows, these low demand numbers look suspect. Also as I mentioned earlier, South American expansion may be less than many people are expecting. With credit difficulties, sharply lower prices and unstable government policies, expansion could be nearly non-existent. With the current Soybean: Corn ratio at 2: 1, a further break in fertilizer prices by next spring would greatly favor corn planting over soybeans. It is not hard to write up a very bullish world scenario for the soybeans once again. The only downside I see right now is the additional 2.2 million soybean acres the government reported on the October report. These 2.2 million acres is part of a total 3.5 million acres the government added to all crops in total. These additional acres will no doubt be added to most balance sheets for 2009 as well. With many people already writing down bearish demand figures for 2009, many analysts will use these additional acres and high yields going into next year. With this combination, I would not rule out estimates of a 2.5 billion bushel carryout for corn and a 300 million carryout for soybeans in 2009.


The wheat market closed lower once again. The wheat market continues to grind lower except for occasional short-covering rallies. Exports have started to slow down as more wheat becomes available from our global competitors. Feed grade wheat will continue to become more available from the Black Sea as we head into the winter. This should continue to hamper our exports. As with corn and soybeans, wheat should continue to be sold on large rallies until the end of the year. Unlike the corn and soybeans, wheat remains well above its' cash value and this could keep futures on the defensive until these levels come closer together.
This is starting to happen. Basis levels have finally started to firm up as most wheat is being stored. People continue to bottom pick the wheat market. The wheat market could be close to putting in a bottom, but that would just be coincidence. Wheat futures still remain high priced relative to corn and soybeans and without corn and/or soybeans rallying from here, it should be very difficult for the wheat market to find a bottom for now.
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