Grain Market Wipeout!
Things have gotten quite interesting in the grain markets over the past few days. But unlike last year, grain prices are moving dramatically lower instead of higher.
As you may remember, last year’s grain crop was turned on its ear thanks to a remarkably hot and dry growing season. The price of corn, wheat, and soybeans surged when investors realized the extent of the crop damage.
But things are altogether different this year…
In a late June article, I wrote how doubtful I was of corn, soybeans, and wheat putting together a summer rally. My bearish stance was based on a blockbuster Spring planting season put together by US farmers.
Let’s take a look at what’s happened to grain markets since that article…
Wheat:
Wheat prices are still sinking thanks to ample global wheat harvests. In their most recent World Agricultural Supply and Demand Estimates (WASDE) report, the USDA forecasted a US wheat stocks-to-use ratio of 24.1%. While that estimate is lower than the last few years, robust wheat harvests in other countries are keeping a lock on rising prices.
Corn:
As you can see, corn is falling hard. The big July downdraft is due to a huge premium that was present in the July (old crop) corn contract. But once that contract expired, prices quickly adjusted lower to factor in September and December prices.
Of course, back month prices are dropping because USDA is still predicting a monumental corn crop for the US. In fact, 97.4 million acres are planted and ending stocks are estimated at 1.9 billion bushels. If farmers can see it through, it will be an undeniable bumper crop. What’s more, it would put the stocks-to-use ratio at 15%, the highest level since the 2004-2005 crop year.
No doubt about it, bears are in firm control of the corn market.
Soybeans:
Believe it or not, soybeans are experiencing the same thing as corn. In fact, beans dropped the exchange maximum of 70 cents a bushel in last Wednesday’s trading session! That’s a huge move and is indicative of the increasingly bearish fundamentals present in this market.
In fact, the USDA is predicting a soybean stocks-to-use ratio of 9% for the 2013-14 crop year. That’s double last year’s ratio and points to continued downside for soybeans in coming weeks.
To sum it all up…
Mother Nature is being very cooperative this growing season. A good mix of moderate heat and ample moisture should provide enormous crops for US farmers this harvest season.
But remember, grains are currently a weather driven market. So don’t be surprised if we see a violent price adjustment should troubling weather patterns appear in coming weeks.
Until Next Time,
Justin Bennett
