Can we expect a "typically quiet" February?
Jan 27, 2010
Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of a horse in the morning before I head in for work gives me a little time to think about the day ahead.
I was thinking…
... about what will be happening in February.
Typically, February is a "quiet time" for the grain markets. Usually... the crop size from the previous year has been settled, both corn and soybeans are coming to the market in a timely fashion, traders are getting a good idea of what to expect from South America and the markets are "comfortable" with supply and demand factors.
This year feels different. While it's tough to argue with USDA's January estimates of 2009 corn and soybean production, the department's National Ag Statistics Service (NASS) left the door open for some debate over the size of the corn crop with its resurvey of some states for a special update to the production estimate in March.
And both corn and soybean crops are coming to the market, but soybeans were moved very quickly from the combine to market and there are more than a few questions about the quality of the corn crop that is stored across the country.
Traders are getting a good idea of potential South American soybean production, but with El Nino weakening some are fearing a too-dry end of the growing season in southern Brazil and Argentina. The corn and soybean crops from South America will be big... it's just a question of "how big?"
But... the markets are "comfortable" with the supply side of corn and soybeans. Any nervousness on the demand side surrounds a potential (and likely) end of the torrid appetite China showed for 2009-crop U.S. soybeans, meal and soyoil and the potential impact of mycotoxins in corn on future export demand.
All this is happening as you try to put the final decisions on just what you'll plant in 2010. Many growers now wait until after price guarantees on revenue insurance products are settled before making final crop mix decisions. The guarantees are set by the average of December corn futures in February and the average of November soybean futures in February. The last couple of year's, that has worked out very well for producers buying those revenue products. This year, USDA's resurvey of the 2009 corn crop in certain states has added some confusion to that process.
The resurvey will take place in key states that still had a significant amount of corn in the field when the survey for the Annual Production Summary wrapped up. Getting the size of the crop right is important... there’s no doubt about that. But the timing of this resurvey is a bit confusing. USDA will contact growers in February for the March update — and much of the corn that was still in the field in December will still be in the field.
And the timing of the survey really couldn’t be worse for another reason. With recent price action, it’s easy to assume prices will “bleed” through a typical February break, pulling down the average price of December corn futures and November soybean futures... taking the price guarantee on revenue-based coverage lower, too.
Then what happens if USDA lowers the national average yield? Not only that, what if USDA erases some of the 300,000-plus acres it added to the January harvested corn acre estimate? Most likely, corn futures would respond to the lower supply with higher prices, leaving the price guarantee below (potentially well below) values at the crop insurance purchase deadline.
That will likely delay crop insurance purchase decisions (and the final crop mix for many producers) until after the March 10 production update, leaving just a few days before the spring crop insurance deadline. At the same time, USDA's NASS will be surveying for the March 31 Prospective Planting Report... which already makes it tough to "trust" the March planting intentions estimate.
Those are just a few things to think about during the typically "quiet" markets of February.