Published on: 13:50PM Aug 14, 2008
Producers with unpriced inventory are breathing a sigh of relief because they believe they have a chance to get a solid price rebound. I would suggest the burden of proof has now shifted from the bulls to prove the crops is out there to the bears proving USDA's 155 bu. yield is correct. I believe I’m living in the garden spot of the Midwest and we missed a rain last week. Everything look great last week and in just 5 days you can now see every low spot. The crop is running out of nutrients and the cool nights are simply not pushing the corn and bean crop. My bias is quickly moving from 155 bu. and closer to 152 bu.
The second thing catching my attention is the level of demand USDA has suggested for both corn and beans—especially corn. Going in to the report, I was really expecting a modest decline in feed usage to reflect the impact of $8 corn on livestock production and the expected herd liquidation that we were hearing. The same was expected for ethanol in that talk was very high the plants were being mothballed rather than opened up. Well guess what, the ethanol plants can make money at $7+ corn. They did a decent job of buying grain plus the influence of high price crude. With ethanol now being projected over 4.1 billion crop the implication is demand destruction was not as great as expected.
This all suggests that any yield reduction now in corn and beans could see this market up as fast as it comes down. The pressure now will be on end users to get their feed needs locked up. Producers who are short to start looking to defend upside price risk exposure. Finally, producers need to be making plans now on how they are going to sell a pre-planting price event if the elevators continue to allow limited forward selling. I continue to suggest buying calls over the next three weeks is a preferable way to have upside price protection in place so you can empower yourself to sell grain between February and June next year.
Bottom line: Normally late August is a quiet time period when we can take a breather and prepare for winter. This year it looks like more of the same, a lot of volatility and tough decisions to be made.
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