Published: August 27, 2008 11:20 am            

Grain Outlook: Weather watch now through harvest

Originally published in the August 22, 2008, print edition.

The following market analysis is for the week ending Aug. 22.

CORN — Corn closed higher four out of five trading sessions last week.

Dry weather concerns materialized early in the week after outside market influences had pushed the market down sharply at the end of the previous week. For the week, the December contract was up 57 cents. On the chart, technical support came from the reversal higher on the day of the August crop report.

The market has now rallied over a dollar off the low set that day. The dry areas of concern are primarily in Ohio, Michigan, Wisconsin and, to a lesser extent, Indiana. While the crop in the western Belt is still rated highly, limited rainfall throughout the week added to the supportive tone. It’s important to remember, though, that overall crop ratings are significantly above the 10-year average, and ahead of each of the last three years.

The annual Pro Farmer Midwest Crop Tour came up with a national average yield of 153.3 bushels per acre. While it’s not surprising that the tour came in lower than the U.S. Department of Agriculture estimate of 155, the reports from the fields did generally dampen the enthusiasm for raising yield estimates.

Well-followed analyst Informa Economics said at the end of the week that the tour reports and the dry August conditions had reduced its bias toward the final yield moving toward 160. In addition to the dry pockets which are catching some attention, the trade is trying to assess the effect of the wet early growing season which has manifested itself in nitrogen, stand and soil compaction problems.

Cash markets were fairly strong during the week. The Gulf market was up about a dime for the week, primarily influenced by delayed southern harvest.

Weekly export sales for the current marketing year were a mere 7.8 million bushels, but domestic buyers provided support to Corn Belt cash markets. Despite the volatility in both energy and corn markets this week, a calculated crush margin for ethanol plants showed a 3-cent improvement for the week.

OUTLOOK: The corn market at the lows near $5 for new crop corn was apparently anticipating a much higher yield than the government’s 155. With the dryness that was able to sneak in without the usual fanfare to the Corn Belt because it was unaccompanied by heat, the trade is probably discounting a yield slightly less than 155.

While the crop remains highly sensitive to rainfall and timing of the first frost, rallies will begin to run into the headwind of harvest shortly.

SOYBEANS — Soybeans staged a typical August rally this last week, starting the week limit higher.

Weekly condition ratings slipped, and forecasts promised little rainfall. By the end of the week, the November contract had rallied $1.08.

The dry August weather was the main influence on prices during the week. A strip of western Illinois and eastern Iowa received rainfall during the week, which by the end of the week was the only area of the growing Belt showing adequate topsoil moisture on private soil maps.

The Pro Farmer crop tour generally found pod counts less than last year, although the later crop this year could explain that. This later crop still needs rain to develop though.

Beyond the weather story, outside markets gave some support to the bean complex, with the dollar firming and crude oil rallying during most of the week. A Friday collapse in crude oil left that market little changed for the week, but that didn’t seem to influence beans too negatively.

Weekly bean export sales were slow, with old and new crop marketing years combining for only a little over 10 million bushels. Bean basis at crushers was higher for the week, while Pacific Northwest bids were steady.

OUTLOOK: It’s August, and that means weather is the primary influence on the soybean market. The drier trend in weather suggests higher futures prices until it rains or harvest reduces the uncertainty of the crop size.

Additional observations: In an early look ahead at the 2009 acreage battle, it appears that current economics favor increased corn plantings. Based on next year’s balance sheet projections, the corn balance sheet does have some room to give up some of those acres to soybeans.

The soybean balance sheet, in turn, needs to increase acres above what current calculations suggest. There does appear to potentially be enough acreage to build stocks of both crops in 2009, contrary to the situation the previous two years. At this juncture, the post-harvest job of the market may be to increase bean acres relative to corn acres. Of course, all of this analysis is highly dependent on so many variables that it is almost an exercise in futility, but it is at least a starting point for thinking about the issue.

        

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