Market Monitor

By Marlin Clark

Uncertain markets lead us out of harvest    

Sometimes I forget what business I am in. Yesterday a customer who buys corn in Central PA made a remark that is significant. He said that crude oil was going lower, so he supposed the grains would all be slipping off until that stabilized.

Time was when a grain commodities dealer did not have to be an expert, or at least conversant, with all other commodities, precious metals, and the value of the dollar. That time is gone. Now the markets are interconnected in odd ways and on a given day the price change in Chicago is not because of anything in the grains.

Historically wheat, then soybeans reacted strongly to some outside markets. Commodity traders who are dealing in gold and other metals may view soybeans as just another valuable commodity. If gold goes up, maybe soybeans are worth more. Or, in our current market, maybe gold is going up just because the value of the dollar against other currencies is going down. This makes the gold higher priced in dollars, but not necessarily more valuable. All those adds about buying gold because the price is going up are really about shorting the dollar.

On the other hand, corn prices now are strongly and directly related to crude prices. With a significant portion of the entire crop going to ethanol production, the price of crude oil, then its gasoline derivative, makes corn prices go up and down. If gasoline declines, it makes the ethanol portion of it worth less. That tends to lower the bid for corn at ethanol plants. If the ethanol plants, for competitive reasons, can't lower prices, they lose money and down the road may close. That lowers demand for corn and brings lower prices later.

All that to say this: prices are bouncing around, and it is hard, from purely a grain perspective, to say why. The only real fundamental news coming is the USDA January Inventory Report in early January. I have been talking about that, and it is finally not all that far away. After this delayed harvest, we will finally get to find out what the crop sizes really are, as measured in bin space. The hope would be that the crop is smaller, due to harvest losses. The reality is, that except for the heavy winds of last week, there has been little to hurt the standing corn. And, the last of the fields are often the best.

The trend of a big crop is to get bigger. Part of that is the USDA methodology, which seeks to make several small changes as they perceive a bigger crop, rather than to shock the market. Part of that is that we just are having trouble coming to grips with the idea that the sun hardly shone this summer, but we are close to an all-time record crop.

In December we have seen March Chicago corn futures at 4.21 on the 1^st and at 3.78 on the 9^th. We got back to 4.10 on Monday, but are closed the Tuesday early session at 4.05.

At the same time January soybeans were 10.78-1/2 on the first, 10.19 on the tenth, and back to 10.59 on the 14^th. The early Tuesday market closed at 10.52-1/4.
Without a surprise in the January reports, we have no reason to get back to the highs. Well, at least not from the grains themselves!

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.