Published: June 18, 2008 05:45 pm            

Grain Angles: Good crop but running behind

Originally published in the June 13, 2008, print edition.

The jet stream has moved north and brought with it the heavy rain we heard about in the southern United States. The temperature is attempting to move higher but the humidity has risen and leads to instability in the atmosphere.

To a point rain makes grain as we head into the growing season. There are parts of the U.S. Corn Belt that are not planted and probably will not get planted to corn. Getting soybeans planted in those areas is also in question.

We do know one thing and that is the weather will change. We do not know what impact the spring has had on the crop. I think most would agree that the crop looks good but it is behind. We have gotten use to knee-high corn at this time of year and not by the Fourth of July. No doubt there has been a lot of rain but the crop is in and I am not ready to throw in the towel yet.

The corn market is sensitive to the recent weather developments and the potential to have below-trendline yields. This market is also sensitive to the price of a barrel of oil which jumped over $10 per barrel recently in one day of trading.

July corn is up 52 cents in the last two weeks and December corn is up 51 cents in the same period. A lot of this move came when oil jumped to new highs. July corn put in a new high June 6 at $6.52 with December setting a new high at $6.90. March 2009 corn also put in a new high at $7.04.

The debate will rage surrounding the number of acres that did not get planted. The U.S. Department of Agriculture estimates 86 million acres and the current private forecasts range 1 million to 2 million acres either way. Over the long haul rain makes grain, and the price of grain is closely linked to the barrel of oil.

Even with the potential of more soybean acres being planted because of the weather, soybeans have not stood still either. July soybeans are up $1.16 in the last two weeks with August up $1.14. New crop November soybeans are up just over $1. The high for July soybeans was put in March 3 at $15.96 with November soybeans putting in a top at $14.66 on March 4. It is not out of the question that these highs could be challenged between now and July 4.

Generally soybeans are made in August so there is a lot of time until this crop is made or lost. Again the barrel of oil has more to do with soybean prices than anything.

Historically there is a large shift in the market between Father’s Day and July 4. It is easy to create a scenario that will run the price of grain much higher or much lower. The higher price will come on oil pushing to $150 a barrel and continued weather concerns. There is no question that the further away from trendline yields the crop gets the more volatile the price action will be.

The lower price action will come with a softening of oil prices, a stronger dollar, better crop prospects or a change in policy relating to oil, ethanol or index fund trading practices. The “outside market” factor cannot be forgotten in the volatility we are experiencing. If grain prices get stronger from here the buyers will stop buying again because no one has the capital to play ball at these levels.

        

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