Views on commodities and energy
Big U.S. corn, soy harvest in the wings
Confidence in an approaching record harvest for both U.S. corn and soybeans and the sudden drop in the cash soybean market late last week will cast a bearish cloud over grain prices in coming days. Given the latest weather and crop conditions, most analysts have upgraded their forecasts to record highs ahead of the government’s next U.S. crop production update on Friday.
“It’s kind of a bearish time period,” said Bill Nelson, an economist at Doane Advisory Services, an agricultural consultant. “Short of a big surprise on Friday that would reverse the trend, there’s more downside risk than upside.”
After weeks of nervousness about tight soy supplies before harvest and the chances for an early frost to cut final yields, traders last week seemed to come to a general view that the danger is over and the bigger crops are now “made.” An old saying on LaSalle Street — home to CBOT markets — is that “big crops get bigger.” That reality hit last week. So the markets began transitioning to supplies and away from demand, a normal psychology at harvest.
Traders will still try to out-guess each other on crop size and keep a sidelong glance every day at any sudden changes in the weather outlook for the Corn Belt, where most of the 165 million or so acres of U.S. corn and soybean are planted. But as of Friday, traders were expecting the U.S. Department of Agriculture to raise its corn output next Friday above the record 13.074 billion bushels U.S. farmers harvested in 2007.
“Everyone I talk to is pushing this big increase in plant populations” for corn, said Roy Huckabay, an analyst with The Linn Group. “If NASS follows through, you’re talking about six bushels per acre just from plant populations above August.”
NASS — the National Agricultural Statistics Service — is the USDA’s official crop counter for its monthly reports. Last month, USDA forecast corn yields at 159.5 bpa while the market is currently trading a minimum 163 bpa yield, traders said. For soybeans, based on a jump in plantings, USDA has all season been projecting a record harvest, now pegged at 3.199 billion bushels. But after a cool July, good August rains and steady-to- better crop ratings last month, the grain trade sentiment is that USDA will come out with an even bigger number.
CROPS GO UP, PRICES GO DOWN
Soybeans on the Chicago Board of Trade last week fell to a five-month low on those prospects, losing 15 percent on the week to end at $9.61 a bushel in the September futures contract. September corn closed at a contract low of $3.00-1/2, its lowest in eight months and a key chart support point to watch when the CBOT reopens on Monday night after the long Labor Day holiday weekend. If corn slides, wheat will tag along given ample U.S. and world stocks and reports of strong hard red spring wheat yields now coming out of the Northern Plains.
“On Monday night, if the weather is nonthreatening then we’ll see if we can take out the contract lows on corn,” said analyst Don Roose at Iowa based brokerage U.S. Commodities.
Wheat last week fell to its lowest point in more than two years, losing 5 percent overall and ending at $4.44 in the CBOT September futures.
One word alone could turn the market around — frost.
Analysts still estimate that some 15 million acres of corn in the northern Midwestern states will not be ripe by Oct 1, the usual first frost date for the region, given the immaturity of the crop after a cool, wet summer. Soybeans, planted after corn, also remain at some risk. But the accelerated growth in recent weeks may well temper any jolt that forecasts for a “killing” frost — in other words, one that halts plant growth — might deliver to speculators. For now, the weather is ideal for early harvest.
Soybeans were already trickling into grain terminals and processors in Nebraska, southern Illinois and some areas of Iowa last week as farmers took advantage of historically high cash prices. That pressured cash soybean bids, even where harvest pressure on supplies had not yet shown itself.
Exporters at New Orleans, the leading gateway for U.S. grain exports, backed off their spot soybean bids as much as $1.15 per bushel over CBOT November and were bidding 95 cents over November on Friday. At Decatur, Illinois, home to the leading processor Archer Daniels Midland as well as other crushers, the spot bid for soybeans on Wednesday night had been $2.00 a bushel over CBOT November futures. On Friday night, it had sunk to $1.20 over.
As more soybeans moved into the hands of processors and exporters late in the week, front-month futures spreads deflated on profit-taking. Traders said, barring a frost scare, that trend looks likely to continue through at least expiration of September soybean futures on Sept. 14.
PHOTO: Iowa corn field with high plant populations taken by Christine Stebbins.