Grains markets started mixed Tuesday morning but quickly saw selling pressure step back in.
Corn Hits New Lows on Harvest Pressure
Corn was lower early Tuesday making new low for the move again with harvest pressure hitting the market despite harvest pace being at 8% behind the five year average at 44%.
Jon Scheve of Scheve Grain says corn will have a difficult time finding a bottom until harvest pushes past 70%.
“We’ve got a wide open week here to 10 days where we’re going to get a lot of progress made. And that’s going to at least help bottom it out. But I think right now you’re just forced with all the bushels are finally coming out of the field. And that’s going to put
pressure on the market until we get past 70% done.”
Funds Liquidating
So from a technical standpoint, the corn market took out the 200 day, it took out the report day low so the market is probing for a low.
Funds are liquidating their massive long position as a result of harvest but also the market is still trying to digest the extra 400 million bushels of corn that USDA found in the last two reports says Scheve.
“I mean, we have substantially more than what some market participants were expecting. And so because of that, you’ve got the funds trying to get rid of a lot of bushels,” he says.
Funds have exited over half their long position which at the record high in September was over 430,000 contracts. However, Scheve doesn’t think they are done selling so it could be painful for another week or two.
“I mean, they can. We have seen them now swing from 400,000 short to 400,000 long. So that’s an 800,000 contract swing, and they’ve moved back about 200,000 probably right here. So, I mean, do they want to go short here? I doubt it. But could they keep moving a few out? I mean, it’s the middle of harvest, and they’re probably also looking at South American weather, and they aren’t seeing anything that alarms them yet there,” he explains.
End Users Waiting
Meanwhile end users have been slowly stepping in on the price pull back but at some point Scheve says they’re also going to sit back and wait because of the carry in the market.
“They’re probably not going to want to get overly aggressive because they don’t really see a reason for this board to rally significantly post-harvest,” he adds.
Farmer Frustration With Reports
Farmers are frustrated with the sell off in corn due to USDA’s huge 2.7 bushel per acre yield increase. Many still think its wrong.
However, Scheve says he’s not hearing a lot of farmers complaining about their yields. “There are certainly some, but there’s people who are quietly going, oh, it’s a little bit better than I thought it was going to be.”
He continues to be frustrated by the comparisons to last year’s yield. He says farmers need to compare their yields to normal and most yield reports are normal on corn and above normal on soybeans and is definitely a record crop.
And he thinks the October report is likely a confirmation of where the crop is because the USDA was able to use ear weights and ear counts, whereas that was not available in September.
“From the corn standpoint I know a lot of people are upset about how it changed from the September to October but I don’t think that the USDA had enough information in the September report to make an educated guess. I think if anything that September report was wrong.”
He doesn’t think the yield will get much bigger from October but he doesn’t think its moving down much either.
What is Basis Telling Us?
So what is basis telling us about corn yields?
There have been some reports of basis pushes in Iowa taking cash corn over $5. However Scheve thinks that is a function of the delayed harvest in the state and region more than a reflection of yield. He says more producers are still trying to harvest soybeans and haven’t even switched over to corn.
“The amount harvested in Iowa is behind by a significant amount. Well, end users plan ahead during the middle of summer and
they buy enough needs and they plan for when they think harvest will start based upon what it’s done for the last five years. You don’t want to be sitting on a bunch of grain paying 20 cents over when you know at harvest time you’re going to be buying it for 30 under. I mean that that’s a 50 cent difference,” he says.
So he thinks it is just a logistical issue. “This isn’t telling us that we’re short on corn this isn’t telling us that we’re out it’s simply a logistical issue by an end user who is playing the market in a way that benefits them the best,” he adds.
Marketing and Extra Bushels
For producers that may have better than expected corn or soybean yields what should they be doing for marketing?
And most producers sell soybeans off the combine and store corn. Is that the right strategy?
He says it comes back to the farmers financial and tax situation, plus the amount of storage they have at their farm. However, its easier to move beans and farmers can generate more income with less amount of bushels.
“Usually the opportunity is better later on for corn from a basis strategy but I think you do what is best for your operation and what you prefer to do. I wouldn’t try to outguess it this year.”
Diesel Plan Impact
President Trump announced an $8 billion Harvest Relief Program on Monday to help provide relief for higher diesel prices.
Will that help farmers and will it impact their marketing by giving them the ability to store grain instead of having to
generate cash, especially as they are also getting ARC and PLC payments this month too.
Scheve says, “Absolutely. That will certainly help stop the flow of grain the minute harvest is over. So again, once we cross 70, 80% done with harvest, usually the last little bit is being harvested way in the north and at that point south of I-80 or even between I-90 and I-80 you just see suddenly farmers just stop shipping grain.”
He says at that point the bin doors will shut and farmers won’t sell at lower prices.
“No one likes these prices, nobody wants to sell sub $13 beans and certainly no one wants to sell sub $5 corn if that, they may even want $5.25. So, we’re a long ways away from both of those. So, yes these payments are going to go a long ways to helping bridge financial issues for the farmers and that should then in turn post-harvest help prices go back higher,” he adds.
Best Chance for a Rally?
Scheve says one harvest is complete he thinks corn and soybean both have the chance of rallying.
However, it will be dependent on demand and the South American weather and crop size.
Corn exports are behind last year but he thinks that will pick up after the first of the new year. Soybean exports are well ahead of last year but by February that will dry up as the South American soybean crop starts to come to the market.
“Then we no longer are the export market then we fully switch over to corn. So, I think that we can still make up for the corn on the export program,” he says.
Plus, he says the U.S. demand for corn and soybeans for biofuels will also keep those markets well supported.
