Corn and soybeans are in a full-blown weather market with extended forecasts calling for little rain and expanding drought covering 57% of the nation’s corn acres and 51% of the soybean acres. That combination has the market putting in a weather premium in a big way. For the week, December corn was up 67¢, with November soybeans closing $1.38 higher and posting one of the biggest weekly rallies in the life of the contract.
While it is early in the season, the market is trying to determine just how much yield is being lost with a flash drought and deteriorating crop conditions in top producing states such as Iowa and Illinois. Jerry Gulke, president of the Gulke Group, says the 181.5 bu. per acre yield USDA is projecting is no longer in the cards.
“Price discovery in the market says we’re trading about a 174 to 176 bpa corn yield with the December corn contract closing in on $6,” he says.
The rally on Friday was pushed by a dry 11- to 15-day forecast. Speculative traders didn’t want to be short going into a three-day holiday, so they covered their shorts and some are even going long the market. However, Gulke says end users are also piling in to buy.
The December corn chart shows resistance at $6 with November soybeans closing in on $13.50 resistance. If the weather forecast stays dry, the market could gap above those chart areas on Monday night. If it does, Gulke says it could get very explosive because the corn crop is moving into its critical reproductive or pollination stage.
Gulke lifted hedges a few weeks ago, which was an easy decision. This week, his firm even got long in the market and made some good profits on the rally in corn and soybeans. However, he says the next decisions will be even harder due to the increased volatility, but farmers need to adjust their yield forecast and watch the weather for clues.
“In these weather markets, somebody wins and somebody loses,” Gulke says. “Your personal objective is to make sure you don’t make a big mistake. I can afford a couple of small ones, but I can’t make a big one by selling too soon. Don’t think just because you don’t have a crop nobody else does either so you’re going to hold because corn is going to go to $7 because Jerry said it might. You’ve got to watch the markets and see what happens with the rainfall because not everybody is losing out.”
Gulke calculates 36 to 42 million acres of corn and soybeans are in trouble and will suffer yield loss, which will pull ending stocks down substantially. A rising tide could lift all ships.
