Market Commentary for 9/13/14
Most traders did not expect the USDA to increase the expected national yield estimate above 170 in the September report (it was 171.6). So, this shook up things this week. While the market didn’t close on the low of the week Thursday (a positive), on Friday it was trending down (not as positive).
Last week everyone talked about the frost concerns for the northern Midwest this weekend…..which looks to be inconsequential. This means no price rallies caused by weather this week.
Many estimates are starting to show national yield averages at 174. On 9/30 supply levels will be reevaluated, which will provide a more accurate “picture” of the remaining old crop that will carryover into the 2014 marketing year. If supply is higher than currently estimated, expect even more price pressure.
Everyone is asking, “where is the bottom?” Technical analysis largely shows $3.25 as a possibility. I am telling clients my “prediction” is that we will trade to $3.25, no farmers will sell at that price, so the market will bounce back $.15-$.25 (in the short term).
If the market breaks $3.25, the next benchmark will be $3. I don’t think we’ll stay there though. 90% of corn and soybeans will be harvested by the end of October. Once grain is in storage, will farmers want to sell at the lowest prices they have seen in five years? I doubt it. Most still have financial reserves that can float them through next year. I suspect most will hold, which could allow prices to rise. What number will motivate farmers to sell next year? It’s too early to tell.
Similar to corn, the market was surprised by the USDA yield estimate of 46.6. With carryout levels 3x higher than last year, beans could lose another $1/bu before the Nov futures go off the CBOT. If corn prices remain steady at $3.40, and considering the traditional corn/bean price ratio of 2.4 to 2.6, beans should be valued in the mid-8s. It may take until after Jan 1st of 2015 to achieve this, but if South America has a big crop (which is expected if the good weather continues), there is significant downside risk in the market.
Reasons to Trade Grain Using Futures
Recently dairies and cattle feeders have asked several of my clients for their corn to chop for silage. Selling their corn as silage offered them a premium, so they wanted to take advantage of this (or at least consider it). Since working with someone like me (i.e. using futures), their grain marketing plans are flexible (even though they have technically priced their 2014 corn). How can they do this? Because they sold futures, and did not contract grain with an end user.
So, this is another example, using futures actually provides more flexibility than just contracting your bushels with an end user and allowing them to carry your hedge. In other words, most often pricing one’s grain with the grain e
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