Market analyst: Still declining
Last Thursday we saw losses of $ 1.20 for soybeans (the biggest daily loss on record), as well as huge losses for other grains.
We’ve been saying for weeks that the market seemed determined to go down, even with no news – essentially removing the grain price bubble that we added last winter and early spring. In one day last Thursday, we wiped out three to four months of rising soybean prices in one day.
Now you could argue that the premiums we had in grains to start the year 2021 are all but gone.
As the big prizes faded, the 2021 growing crop that got off to such a good start (early sowing in good moisture) has slowly deteriorated over the past three weeks, with spring wheat falling the most in harvest ratings.
Corn and soybeans are also suffering nationally, with a three to four bushel per acre drop for corn in recent weeks and a one bushel per acre drop for soybeans.
Essentially, that means we went from an above average corn / soybean crop to a below average harvest in just a few weeks in the same week that prices fell sharply. Two bushels per acre of corn lost per week means 180 million bushels of lost production with just 1.1 billion of carryovers expected. A loss of 1 bushel / acre in soybeans is 90 mb with only 150 million bushels to go.
Thus, as prices fall, the risks of shortages for the 2021 campaign increase. The western cornbelt presents the greatest risk, including North Dakota, South Dakota, Minnesota, Colorado and Nebraska. These states have little moisture in July and August, when we typically use stored soil moisture, i.e. moisture that is not present in 2021.
Weather forecasts continue to suggest cool / humid for the eastern / southern two thirds of the Corn Belt, but hot / dry for the western / northern third of the Corn Belt.
Today, the remaining rain system across the United States leaves the East Coast, with no real organized system crossing the Corn Belt as we typically do every three days in the summer. This leaves a void in the precipitation; however, forecasts predict an improvement in rainfall changes in the central and eastern Corn Belt, enough to maintain high yield potential. But the parched west / north corn belt will see further deterioration in crop yield potential.
The harvest conditions of June 21 highlight that the southern areas are doing well (improvements in conditions for winter wheat (+ 1%), cotton (+ 7%), groundnuts (+ 4%) and corn (-3%), soybean (-2%), oats (-3%), barley (-6%), and especially spring wheat (-10%) conditions.
Soil moisture levels also deteriorated rapidly over the past week, with -4% adequate / excess subsoil and -7% topsoil representing significant losses. These are fairly large drops in soil moisture as well as the condition of spring wheat, barley and corn within a week.
Pro Ag yield models have decreased 0.62 bushels per acre of corn (an additional 50 million bushels lost), and in the first full-data soybean yield model, it shows potential yield of 48.6 bushels per acre, 1.2 bushels per acre below “trend”. That’s 108 million bushels less than production potential.
When subtracted from our anemic carry-over levels it leaves almost no closing stock, so this is a critical time for the harvest. We had better forecast the rains for the next two weeks, otherwise the harvest will be in terrible shape. Markets are down Tuesday morning after a stronger open, but the evidence will be whether we actually change our dry / warm weather pattern, or simply continue not to receive rains that are expected to fall.
The market is a bit at a crossroads; will we have the rain to revive the yield potential of the 2021 harvest? Or will we continue to decrease the yield potential, just as the soil moisture situation suggests when the crops water requirements exceed the normal falling precipitation. There is simply no more soil moisture stored in the western / northern areas, so yield losses will be determined only by the rainfall that falls relative to the demands of the crops. And generally in the West, normal rainfall does not match crop requirements in July and August. Thus, without excessive precipitation, further deterioration is likely.
To be completely honest, if the crop continues to deteriorate, the rains continue to be elusive, and prices continue to drop, Pro Ag will recommend buying call options to protect our considerably profitable and substantial sales for them. crop marketing campaigns 2020 to 2024. Because when things were too good to be true and prices were overheated, we were aggressive sellers. Now that prices have dropped significantly and crops have deteriorated, it would be foolish not to at least buy cheap call option protection to protect those good sales. After all, this is the whole point of risk management.
Ray Grabanski can be contacted at [email protected]