As farmers alike prepare for big harvests in corn, soybeans, and wheat around the world, traders are trying to manage some significant volatility in the grain market.
Thanks to great crop health, strong pod counts, and an unexpected bump in acreage, soybeans may nudge out corn as this year’s record-producing crop. Just last week, Pro Farmer predicted that the United States will produce 3.812 billion bushels of soybeans, which is nearly a 16 percent jump from 2013.
Even in North Dakota, where the wheat crop has suffered from disease, the soybean "crop is looking great," writes Ted Seifried, chief market strategist for the Zaner Ag Hedge Group. "In most years, this would not really mean a whole lot," Seifried says, "but rail issues and the nation’s worst corn basis has encouraged a 1.35 million-acre increase in soybeans, according to [USDA-]NASS."
With prices softening, both traders and farmers are scrambling. "Soybean traders are trying to digest what has become an extremely violent and dangerous front-end of the market. Yesterday's 60-cent-plus plunge from the high to the low certainly opened a few eyes. The new-crop NOV14 contract also fell under pressure, and posted a new low on the charts at $10.26, which now becomes nearby support," writes Kevin Van Trump of Farm Direction. "Longer-term, I still believe the market is "technically" looking to test the $10.06 or $10.05 area vs. the NOV14 contract before finding more stable footing. … I also continue to hear producers further north trying to harvest earlier than normal in an effort to capture some additional premium."
With a 14-billion-bushel harvest predicted for this fall, everyone thinks corn prices still have plenty of room to fall. (The grain closed on Wednesday at $3.65 for December futures.) "The corn market struggles, and it would appear that it is only a matter of time before the impending harvest forces us into lower lows," writes Dan Hueber of The Hueber Report.
Those hoping for higher prices for this year’s historically large corn crop think that weather might help their cause, but Van Trump is skeptical. "Tell me: When was the last time a ‘freeze’ event sparked a major longer-term rally in corn? I'm not saying it isn't possible...I'm just thinking it isn't probable!" he writes. "Therefore, if you take a major bullish ‘weather event’ out of the equation, I'm afraid there is still additional downside price-risk."
He notes that some expect an even larger harvest, with some analysts estimating a crop of nearly 14.5 billion bushels, which would of course lower prices even more. He cautions farmers to be smart with their marketing decisions and manage their risk thoughtfully, not recklessly. "Continue to take advantage of the rallies when they present themselves. Reduce your risk to only those bushels you are comfortable storing and or carrying for the proverbial ‘long haul,’" Van Trump writes. "I continue to worry that the bears at-bat could extend further than some producer's credit line."
His worries may be justified. According to a Farm Journal Pulse poll, nearly 40 percent of 2014 corn production is still unpriced.
Quantity may be the factor pushing prices down for soybeans and corn, but for wheat, the big issue is quality, both in the U.S. and overseas.
"Heavy rain in North Dakota caused delays to the spring wheat harvest and threatened to damage quality, supporting futures," according to U.S. Wheat Associates, who noted similar concerns abroad. "A Ukrainian flour millers association asked the government to suspend exports of high quality milling wheat until more is known about the size and quality of the harvest. Excessive rain considerably damaged crop quality and local millers worry there won’t be enough milling-quality wheat to meet domestic demand."
Indeed, wheat prices are up, climbing to $5.622 for December futures on the Chicago Board of Trade on Wednesday.