This has been a head fake type of year in the grain markets. Earlier this morning we learned about the ending grain stocks for the 2009/2010 marketing year. When I saw the numbers putting last year’s ending stocks in corn at 1.7075 billion bushels, I found it hard to believe. Previously we had been sitting at about 1.4 billion bushels and suddenly we were back up to 1.7. I’m counting three head fakes now in the corn market in 2010. The first one was in January when USDA told us there was much more corn than they thought. The second one was in the stocks report on June 30th when they said that was not the case sending corn on its run-up. The third one was today when they said they’ve essentially found 300 million bushels of corn that “wasn’t there!”
For those of you who are hardened USDA critics, I’m sure it is enough to lead you to drink. There is some conjecture that some of the new crop got mixed up with the old crop on September 1st but these theories make me tired. I think that we will constantly get gray hair and maybe even start drinking heavily if we try in earnest to keep the USDA honest. As my colleague Darin Newsom said today in his online webinar, “I don’t think we’ll ever know what happened to the 2009 corn crop”.
That was good enough for me. As some televangelists might say,” it’s a miracle!” I don’t know how to categorize it except for the fact to just move on. The simple truth is regardless how it got there we have more corn in the pipeline than we thought and it will surely have an effect of 15 to $.25 cents on the corn futures market. Corn ending stocks are no longer sitting at 8.3% for 2010/11 but 10.7%, still tight after all this drama.
The fourth headshake in the corn market may come on October 8th. That’s when the USDA will be issuing their new crop production estimates and market watchers will be looking to see if they reduce their corn yields further. In August USDA pegged corn production to be 165 bushels per acre and they lowered that in September to 162.5 bu/acre. Many expect the lower production numbers heard over the past few weeks to put that number under 160 next Friday. If the USDA reduces this number substantially it’ll wipe out the increased stocks reported this morning. However, if they go the other way or keep yield unchanged, we’ll have our fourth headshake in the corn market this year.
Keep in mind that the tightness in the corn market has developed over a year when we’ve had a tremendous contraction in feed grains available to the world. The first USDA headshake in January barely caused a ripple on the supply side of the equation. Then we had the Russian drought followed by the Russian export embargo and all the hype that went along with it. Of course this has caused the price environment to rise substantially and it does put pressure on demand. So despite the tightness in the corn market and the pressure on competitive feed grains the potential for upward price movement in corn I believe is mitigated. It might not be in the futures market but it surely will be in the cash market.
The soybean stock number came in at 151 million bushels, which was within range. Add a bit of dry weather in South America to that equation and you can see why soybeans are trading above $11 a bushel. Some people might think the market is tremendously overbought and looking to correct. However, in this volatile market with corn and wheat gyrating who really knows?
I have often said I believe the best marketing plan is where you are profitable and comfortable. My question is, are we there yet? What is coming is an obvious acreage battle in 2011. It might be an even bigger battle than it was back in 2007 and 2008 although that is hard to imagine. In 2007 we needed to grow a lot more corn and North American farmers responded. What’s obvious this time around is with growing demand and some unfortunate production shortfalls in the rear view mirror, its led to a situation where price will have to buy acres in the corn and soybean complex. In 2011 the market will not be able to afford the production shortfalls it saw in 2010. I believe that the market will try to work that out before we even get to the field in 2011.
Does that mean we should all contract now? It’s pretty obvious that for the most part in 2010 those who didn’t contract anything made out like bandits. That’s not to say it’ll happen again but what it does prove is the tremendous volatility in these current markets. Will there be a head fake next Friday from the USDA? If 2010 has taught us anything I wouldn’t doubt it.