This Week’s Market Forecast from Minnesota Jon…
Market Commentary for 10/17/14
The corn belt’s forecast this week shows good harvest weather. Similar to many of you, I’m running the combine this week, so I’ll keep the commentary short.
On Thursday I drove from Minneapolis to my farm south of Lincoln, NE. I was amazed by what I didn’t see… there was very little corn harvested along I-35 and I-80. For mid-October, this is a big change from years past. Bean harvest was still in progress, but it wasn’t as far along as I expected, considering the USDA reports that beans are 40% harvested.
There were incredible corn and bean rallies this week. Several things caused this.
One, fed statements that interest rates will not likely increase in 2015. This makes the dollar less valuable and easier to export grain overseas. This caused short covering by the funds from the rise in prices, which caused even more rallies (sell the Dollar and buy grains).
Second, the financial market went into a tails-spin with the news of a second ebola case. Wall street shifted cash to the commodities market.
Many traders were concerned that the early rallies were just short covering and that when the funds were done buying their short positions back the market would return to test lows in the market. Why were they concerned by this?
- The spread between Dec and July futures didn’t narrow.
- The basis for corn actually widened when the market rallied.
Both suggest the end user is not behind the rally. If the end user is not behind the rally, its hard to justify the price levels.
The bean market rally in the short term could make sense though.
- Basis at the processors for quick ship is slightly stronger. I’m seeing pushes in the bid at many processors across the Midwest.
- Soymeal prices have rallied on strong demand in the near term from pent up demand when beans were very high priced before harvest.
- However, there is concern that the spreads from Nov/July didn’t narrow, which could indicate this rally is short term in nature.
The strength of farmers’ grip on crop values is interesting. The grip may loosen though when farmers are looking for storage opportunities for corn/beans. After harvest, will farmers sell immediately? If not, what price will trigger selling? That is the million dollar question. (If you know the answer to either question, please share with me so we can make a lot of money together.)
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