Market Monitor

By Marlin Clark

Two ugly weeks in the grain markets

Last week I referenced Shakespeare's quote about "now is the winter of our discontent.". It remains to be seen how the whole winter is, but the last few weeks have been ugly.

Corn and soybean markets used the USDA reports that were out January 12^th as an excuse to crash markets. The soybeans, that were already declining going into the reports, accelerated the decline. The result is sharply lower prices in all three commodities, unhappy farmers, and a phone in my office that doesn't ring much.

It is hard to get excited about selling me grain when corn has dropped 60 cents, beans are off $1.40 since the fourth of January, and wheat is down almost 90 cents. It is hard to be excited about talking to farmers on the phone when they want to know what to do and I don't have an opinion.

Maybe that is an exaggeration. I can usually come up with an opinion, I just don't have a strong one. I notice that the cheaper grain gets, the more I say I can see an excuse to wait to sell. Maybe we can get a bounce. By definition, that means I am resorting to the same kind of wishful thinking that is keeping the producer from selling—if the price was so much higher recently, there must be some kind of bounce.

There are two problems with this. First, the farmer wants be to encourage him to do nothing. If I agree with him, I must be right. He does not want to sell at these prices, and I am giving him an excuse. If I encourage him to sell and the prices do bounce, he will think I am taking advantage of him. Second, the charts do not encourage the idea that there will be a bounce. They make the market look like it could go a lot lower before it finds support.

Look at the March corn futures. We left a report gap. That is, after we trading down the daily limit of 30 cents, the next morning's open was lower than the previous close. We left a hole of 3 cents between the close and the next day's high, near the open. On one hand, this gap is a technical objective. That is, we almost always go back and close and corn chart gaps. Of course, there is no telling how soon that would happen. And, there is another matter—where is the downside support?

The same March corn futures chart shows the next chart low clear down at 3.40-3/4, down another 24 cents in round numbers. It is conceivable, even likely, that we will test that low. The next lows are at 3.23-1/2 and 3.15-1/2. Now, that is ugly! In reality, there is nothing to keep up from going that low if we do not inspire some confidence.

The March soybean chart is another problem. The recent low is the overnight Monday/Tuesday at 9.33-1/4. There is not any support showing on the chart until we get to the last low of 888-1/4 that was made back in early October, the harvest low. We have already blown past the old early November low of 9.55-3/4.

So, we might get back to harvest lows. Is there any good news? Well, the cheaper we get, the more excitement we can generate with less news. Any fundamental news that is bullish has more punch when prices are low. What news can there be? Better exports and usage with cheaper grain is one. Then, we are not too far away from the March 32st USDA Planting Intentions Report to think about what prices might do to acreage intentions and what acreage might do to price.

Then, there is the normal ebb and flow of the market. It is not entirely wishful thinking to hope that traders look at cheap prices and decide they are too cheap. At some level traders will want to bet on higher prices. I just hope they don't wait for those old harvest lows to get some nerve.

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

Market Monitor

By Marlin Clark

Midwinter report

The January thaw has stalled here in Wayne. There was too much snow for a few days of temperatures in the thirties to melt away. Cooler temperatures are back. A couple of feet of hardpack that was left from the four feet or so that fell is now down to six inches, with a few bare spots peaking through. I can see gravel in parts of the drive.

A black track runs down the middle of the road, where the sun and traffic has finally defeated the four inches of ice that was Howard Road. I saw a township trustee in Crossroads Restaurant two days ago and he asked me how the road was. I told him it was starting to thaw into slush. He said after it melted a little they might plow it. That seemed backwards to me, but the only township roads that are bare are the ones the dairy farmers have plowed themselves.

A pair of squirrels, that Squeeze calls Albert and Victoria, are gamboling on the icy crust. They are safe for now from the Lumbering Lab, since he is breaking through the crust and can't chase them. One day soon they will lose track of the Lab and become a splash of color in the monochromatic landscape. I can see it now—a bit of orange belly and red tail and rear legs hanging out of the mouth of a black dog on a white background.

The 'possum that I wrote about last fall got married, then disappeared for the winter. I saw him with his wife twice under the bird feeder, then they were gone. I got smart and replaced the feeder with a birdy mansion that holds an entire 40-pound bag of sunflowers. That is becoming a major budget item as the snow covers alternative feeding areas.

The stone path around the house has crept out of the snow. The part over the septic tank of course appeared first. There are no apples left under the Northern Spy tree. They are the last to go, as the deer come calling every night. The other trees are in the open, and the apples are easier to get. By the time the Northern Spies are gone, winter is usually over. This means the deer will go back to gnawing on my young hardwoods in the south lawn, which continue to struggle to get established.

Oh yes, the grain markets crashed after the USDA Inventory Report last week. After the first flurry of calls, the phone has gone dead, as farmers try to adjust their thinking to corn futures that have lost 58 cents and soybeans that are down over a dollar. It is not nice to surprise the Chicago Board of Trade.

What was the surprise? How about a new all-time record corn crop on top of the record soybean crop? The market was shocked, shocked to find that USDA raised the crop size in the final Crop Production/Inventory Report instead of lowering it as expected. USDA did say they were going to take another look in March, since there was still as much as five percent of the crop not harvested. Still, they are convinced we raised 13.151 billion bushels of corn and 3.361 billion bushels of beans. Last month they had the crops at 12.820 and 3.338 billion.

Sol, the USDA pattern of being conservative about big crops held. The old saw that big crops get bigger got proven. USDA may have thought earlier that the crop was this big, but they steadily increased the numbers until the end.

Now the market recovers from the surprise. Now the traders adjust to new fundamentals. For the farmers, now is the winter of our discontent over grain prices.

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

Market Monitor

By Marlin Clark

Some days you can't win, writing a marketing column. Readers think you know something, and you hope to preserve that illusion so they will continue to read.

Today that can't happen. Today I have to write this just as USDA has released the report that is hanging over the market as maybe the most important of the year. And, I have to react to that release before the market opens. On the surface that looks easy. I have the numbers in front of me. In fact, the big question now is the twist the traders will put on the numbers. That is, is there any real surprise?

This Tuesday morning as I write this, USDA has released at 8:30 our time the Annual Crop Production and Planted Harvest Summary. Also released this morning, but not quite so critical, is the USDA January Supply and Demand Report.

At first glance, there is one surprise right away. USDA now says we raised a record crop of corn, in addition to the record crop of soybeans we already were pretty sure about. The cynic would say that is why corn went down nine cents on the overnight session—the traders had inside information. More accurately, the traders lost nerve before the report and sold off.

USDA now says the crop is 13.151 billion bushels. They do admit that they will be revising the estimate in March. As much as five percent of the corn crop was never harvested, and it remains to be seen what the losses from winter weather will be.

This is the year of the topsy-turvey crop. It went in late in most places, then seemed to stagger with a lack of heat. Yet, when the combines hit the fields farmers were very pleased with yields. Then, the harvest was delayed by wet weather. That led to a contra-seasonal harvest rally as the market worried about supplies.

Now, it looks like they did not have to worry. After all the action, we came out with a record crop. There is one lesson to be learned from that—cool weather does not affect the overall crop like hot weather. We think we want hot weather, but that means it is too hot in some areas and those farmers are losing yield. It may also mean that our modern varieties have more vigor in cool years than we realize. The coolest summer on record in most of the Midwest produced the largest crop.

USDA had put the crop at 12.921 billion bushels in the December report. Most traders thought the crop size would be cut, and the average guess was 12.82 billion. So, the market starts in an hour with 330 million extra bushels. That cannot be good for prices. It will encourage those farmers who sold ahead of the report as a matter of discipline.

On this report, ending stocks for August 31, 2010 are estimated at 1.764 billion bushels, up from what was already a high 1.613. In pure numbers that is a high number, and reminiscent of years of low prices. As a percentage of the crop, however, which is more important these days, it is onerous, but not overwhelming.

The soybean crop came in at 3.361 billion bushels, up from the already-record 3.338 of last month. That will lead to 245 million bushels left over at the end of the year according to USDA, up from 237 in the December report.

The question of the last few days in my office has been, what is moving wheat prices? July wheat futures have gained nearly 50 cents in three weeks. USDA says the wheat plantings are down 14 percent from last year, and this is significantly more than traders had thought. 37 million acres are planted, against last year's 43.3. This leads to 200 million bushels less wheat than the smallest pre-report trade guess.

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