Wow, it is frightening just how fast the market can change when the momentum starts to change. The outside markets had a huge influence on the way up and just as huge on the way down.
The market started to break even before the financial market meltdown and then the U.S. Department of Agriculture threw us a curve ball in the October report. This type of market activity can leave us wondering if and when the rebound will start. There are so many issues at play it will be difficult to sort all this out for some time to come.
The financial markets contributed to the up-tick in all commodities and when they ran into trouble they have contributed to the downturn in the market. Just as the price of oil went up, the grains followed along; now oil is $80 a barrel, and grains have plummeted.
The adjustment of those portfolios made it necessary to adjust the allocation of money to maintain the prospectus each fund has to issue at the beginning of the year. The USDA put another spin on things with the last crop report. Their changes put more uncertainty into the grain market.
The corn crop is now projected to be 12.2 billion bushels. The average yield was increased to 154 bushels per acre which is up from 152.3 bu./acre. The carryover of corn is projected to be 1.154 billion bushels which is adequate to the market to function.
There is no question that the usage of corn has slowed, given the livestock industry and ethanol isn’t as strong as it was. Corn usage to produce ethanol is projected to be down 874 million bushels from a year ago.
The national average soybean yield is projected to be 39.5 bu./acre, down from 40. The major surprise was adding 2.2 million acres to the planted and harvested acreage numbers. This will result in a 2.983 billion bushel soybean crop with a 220 million bushel carryover.
The soybean supply is adequate up from 135 million bushels a month ago. The supply of corn and soybeans is still tight so the story is not over yet.
The Revenue Assurance and Crop Revenue Coverage policies will be in play this year. The spring price of corn was $5.40 and soybeans $13.36. December corn has traded to $4.08 and soybeans to $9.10. The soybean harvest is wrapping up and the price will be set Nov. 1. The CRC corn price will also be set Nov. 1 and RA corn price will be set Dec. 1.
It appears there will be a price loss on most soybeans because of the generally low yields. If there was a time for weak markets it is now, because the volatility helps the crop insurance policies be more effective.
Obviously the corn and soybean prices cannot stay here or 2009 will be a tight year. Many comments have been made that the grain markets will have to bounce up because of the high cost of production next year.
The market does not care what the cost of production is but hopefully it will be more responsive to the fundamentals of the grain market and not the overall market activity.
Grain Angles is written by Dennis Kelly of LeCenter, Minn.