Grain and livestock futures were mostly higher on Wednesday.
Grains Extend Gains Post Reports
Grain markets ended higher on Tuesday after some friendly data in the USDA reports and were extending gains on Wednesday morning.
Jon Scheve with Scheve Grain says the grain futures were beat down coming into the reports due to farmer selling head of the end of the month and first notice day on the July contracts.
So with that selling pressure out of the way and a new month and quarter starting there is some new money and new buying in the grain markets.
Is the Grain Market Bottoming?
He says, “After the corn markets moved nearly 80 cents a bushel lower in the past two months, it’s obvious we’re constantly looking at, is this the bottom? And I would say that we’ve said that five times in the last two months, and it never seems to be there.”
So is this finally the time? He says it might be, “To me, June 29th day when the corn went down and touched below $4 on the July, that felt like a lot of farmers pricing their July basis contracts that needed to be done before the delivery which was on June 30th yesterday and and I think that you had just a lot of corn coming to be priced and that forced futures a little bit lower,” he explains.
However, heading into a new quarter and a three-day weekend he thinks short fund traders want to decrease their risk.
Weather the Focus Now
He says that is because typically the weather is the focus around the July 4th weekend.
“In 2012 the market did bottom out in late June and then rallied $3 a bushel over the next two months so And usually after July 4th, if you’re going to have those big rallies, they’re going to come after that once we can see the weather, which is a 10-day window right into pollination,” he says.
Can the Market Build on the Strength?
Scheve says whether or not the market can build on this strength is dependent upon what the funds do.
“As of right now, we don’t have a reason to rally significantly. Could we push it lower? I mean, there’s still a lot of corn out there, but the farmer doesn’t want to sell it. The weather’s unknown. So to me, it feels like we’re still in search of a reason to rally. We may be done with a reason to go down which will be positive for a week or two but then we need a weather issue or something as a trigger,” he says.
Stuck Until August Certified Acres
Scheve thinks the grain market, but especially corn, got no direction from USDA’s acreage figure in the report which was left nearly static at 95.3 million acres.
So in his opinion the market may be stuck until August when FSA and RMA provide more updated acreage numbers from insurance and certified acres for farm programs.
“Last year, the USDA kind of did the same thing here. They kind of left acres alone in the June report, and then it was really where the August and September surprised us when they increased those acres, and we picked up another two to three million acres,” he says.
Acres Could Decline
Unlike last year, he believes corn acres could decline moving ahead, just based upon the producers he is talking to across the country.
“This year, I was expecting a decrease in acres. We haven’t seen that yet. Maybe my data isn’t right this year, but I still feel like we could drop it.”
But he says we may not known that until August.
Are the USDA Reports Needed?
With USDA just kicking the can down the road, he doesn’t think the June 30 Acreage Report is needed and that is especially the case when farmers are not taking the time to fill out those surveys the way they should.
“And why do a survey when we can have absolute accurate information from the insurance and the FSA and all that information that’s already has to be reported. We get that in August so we might as well just wait for that,” he says.
Plugging Acres Into the Balance Sheet
When the 95.3 million acres of corn are plugged into the supply and demand tables with a 183 bushel per acre yield, Scheve says production and ending stocks are still not low enough to get the market excited.
“That is ultimately the problem. So we need either those acres reduced or we need to have a yield issue. And the weather has been nearly ideal for most of the country. Yeah, there’s some drowned out spots here and there, but drowned out spots makes up for it on the hills. So to me, it’s like we have a great chance at 183 or higher on this yield,” he adds.
He says while it doesn’t look bullish today that doesn’t mean the market is all bearish from here.
“It just means the market’s in a holding pattern until it gets more information.”
Quarterly Stocks on Corn: Yield Too High or Demand Estimate Too Low?
Quarterly stocks were the biggest positive for corn in the reports at 5.29 billion bushels.
That was up 652 million bu. from last year but was around 113 million bushels below the trade estimates.
So was demand stronger than expected or was USDA’s estimate on yield and production too high?
Scheve says the yield was probably even bigger than 186.5 bu. per acre. So it was something all together different.
USDA Not Accounting for Bag Storage
He thinks what is being lost is the amount of bag storage.
“I think the USDA is having trouble tracking this, is how much grain are in those grain bags every year. Within about a 30-mile radius of my farm in southeast Nebraska, I can count at least five producers that took 2024 grain in August and put it into bags and stored it until March of 2026, and then started unloading those bags of old crop corn,” he explains.
USDA is not accounting for that old crop corn being held over from one year to the next.
“It’s difficult to measure all those. So, I think it goes back to we should be measuring everything with the crop insurance because surveys don’t incentivize anyone to fill them out but the crop insurance certainly does and to fill those out correctly,” he states.
Right now he says this is messing up USDA’s ability to calculate what read demand is and what real yield potentially is.
“So to me 100 million bushels up or down. Either we had a 2 billion carryout, a 2.1 or a 1.9. That isn’t going to change the needle on
prices either. What ultimately happens here is how many farmers are storing that grain and holding it for a rally that comes down the road. And I think that that number is getting bigger and bigger every year. And the USDA’s on-farm data for actual bins doesn’t make any sense. It’s been steady for 10 years which doesn’t make sense with all the bins out there,” he adds.
Hold or Sell?
So what should producers be doing for their marketing plan?
Scheve says it depends on their logistics and if they need cash flow.
“If you can store the grain, the market’s asking you to store grain. I know of some producers who said they had still old crop left in the bin, but they sold some new crop. Well, talking to some elevators in the northern part of the country they’re saying they fully expect some of their producers to hold their old crop in the bin and deliver it against their new crop sales and then store the rest of this corn because they don’t want to sell at these low prices,” he says.
He agrees these prices are too low to make sales but he is unsure if the market will rally or if there is more downside potential until he gets acreage numbers in August.
What Not to Do!
He says that leaves farmers in limbo, but he knows what they should not do.
“Do not put it on free DP or deferred pricing or into some storage program and or set the basis because what you’re doing is letting an
end user take care of your grain and take care of their needs right,” he explains.
Currently some ethanol plants are seeing a massive push on their bigs because they can’t get farmers to sell grain.
“In other locations we’re seeing end users who’ve offered free DP they have really low basis but then you have a shuttle loader 20 miles away from the ethanol plant who’s bidding substantially better than the ethanol plant because they need corn to load because they’ve got demand somewhere,” according to Scheve.
So he says the worst thing farmers can do is tie themselves to one grain location.
“If you hold it they have to bid up but that requires every farmer to do this and too many farmers are willing to go with free DP so it’d be really nice if we could get everyone to quit delivering grain.”
What About Calls?
So if you aren’t selling what about buying calls?
Scheve says farmers buy calls because it gives them the hope factor but he points out the inherent danger.
“The problem is calls lose money if the market doesn’t go up and it’s just sideways and they lose money if it goes down. The only way they make money is if they go up. So that’s a 33% chance.”
He says it is find if they can buy out of the money calls cheap but otherwise the farmer does not make much money unless the market has a huge move.
“I see with too many people buying calls on the old crop in hopes that it goes up, but I have nothing sold on my new crop. Well, then why are you doubling down?”
And potentially wasting money.
Puts are also questionable because how much downside potential is there at these low prices.
