The Nov. 9 U.S. Department of Agriculture report provided more bullish news, but a bearish reaction to that news leaves everyone wondering.
The bull needs to be fed everyday but it is going to take some time to sort all the information out. Is the market short of corn now or at some point in the future? Marketing decisions now are no easier than they were at $2.50 corn or $5 soybeans.
The USDA decreased the corn yield by 3.5 bushels per acre since the September report. That report projected a corn crop of 154.7 bu./acre and it is now at 151.2 bu./acre. A total reverse in the old adage that big crops get bigger. The national crop size is now at 10.75 billion bushels.
The same September report pegged the soybean crop at 41.8 bu./acre. The old adage worked with soybeans. Today the yield estimate is 43 bu./acre and a total crop of 3.2 billion bushels, largest in history.
Many people have made sales previous to this rally. The rule of thumb is to have at least 60 percent of the crop sold by August. I am hearing from those who have done that and many are sold at much higher levels than that. It was the right thing to do. No one anywhere could have predicted this move at this time of year. The decisions were made on the best information at the time. Most conversations this summer and fall were trying to estimate how large the loan deficiency payment was going to be.
Farmer selling is reported to be slow. Now no one will sell anything because the news is so bullish and it is a sure bet the prices will continue to go higher.
Some sold crop in large increments which makes those early sales even more painful. Whatever grain you have left to sell it is important to have a plan to sell it. Most importantly is your plan for the 2007, 2008 and 2009 corn crop at the current future prices.
Also November soybean futures near the $7 mark are attractive given the fundamentals of soybeans.
Basis levels provide a good indication of what those buyers want. The corn basis at Savage has begun to widen out. The southern Minnesota basis for corn is narrowing slightly. The two buyers have different needs and therefore are bidding accordingly. The soybean basis is steady at Savage as well as in southern Minnesota. If farmer selling is slow the basis levels will change daily.
Obviously facilities that are crushing soybeans or grinding corn for feed will have to figure a way to keep grain moving to market. Basis is the way buyers regulate that movement.
The toughest thing to digest is just how bullish the market is. The old adage is the market is most bullish at the top. Is this the top? Two publications that I read have interpreted the corn chart as a measuring gap and the next move up is over $4.
A 565-million-bushel soybean surplus is huge. Will soybeans continue to mirror corn? Extend the future prices we have into the future as far as possible. Selling in small increments will help take advantage of every move higher.
It will take some intestinal fortitude to ride out the corrections because the market will correct. It does not move higher everyday.
Grain Angles is written by Dennis Kelly of LeCenter, Minn.