Grain Prices Jump- More Gains To Come?
Grain Prices Rally- Still Room To Profit?
What a month for grain prices…
Corn, wheat, and soybeans have all experienced strong rallies the past few weeks. Corn is up a whopping 21.9% in the past month, while wheat and soybeans are up 14.2% and 9.5% respectively.
Take a look…
What’s sending these commodities higher?
Mother Nature is providing too much of a good thing…
Parts of Midwestern US have received copious rainfall the past few weeks. While rain is generally welcomed by farmers, too much of it is a bad thing. It’s so wet in parts of Indiana, Illinois, Missouri, and Ohio that many corn and soybean fields are now inundated.
According to a recent United States Department of Agriculture (USDA) crop progress report, a larger than expected percentage of corn crops are in “poor” condition due to flooded fields.
What’s more, soybean plantings are behind schedule as compared to 2014. As of July 5th, 2015, 96% of the US soybean crop was planted. Last year at this time, 100% of the soybean crop was already in the ground.
The excess rain has investors worried corn and soybean yields won’t come in nearly as high as previously forecast by the USDA.
This weather uncertainty is precisely why grain prices are on the upswing.
Now the question every grain investor is asking is- “Does this rally have more room to run?”
Here’s the deal…
The sharp late June/early July rally is likely due to rampant short covering instead of new buyers coming into the market. You see, grains were heavily shorted earlier in the year as traders bet on an ample grain inventories in the 2015 crop year.
With that outcome now in question, bearish investors are begrudgingly throwing in the towel.
So, just how much upside is left in grains?
Here’s my take…
In last Friday’s monthly crop production report, the USDA said it expects 13.53 billion bushels of corn to be produced by US farmers this season. That’s down from the 13.63 billion bushels the government agency expected in June.
And while the USDA left corn yield estimates the same at 166.8 bushels/acre, most analysts expect a slightly reduced yield estimate in next month’s report. The same goes for soybeans.
Clearly, there’s a bullish thesis for additional upside in corn and soybeans…
However, I’m wary of getting long grains at current levels.
With grain’s recent gains coming primarily from aggressive short covering, further upside will likely be much harder to come by. In fact, I suspect any additional rallies in corn and soybeans will be rather mild compared to the advance of the past few weeks.
Bottom line…
Even though recent Midwestern US rains have thrown the 2015 crop outlook into question, I’m still not overtly bullish on grain prices from current levels.
Unlike the Summer of 2010 where corn jumped by over 100% in a few months due to extreme drought, this year’s flood induced price rally will likely be rather benign.
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
Category: Grains
