Grain Angles: Fall grain delivery could be issue

August 15, 2008 03:04 am

— The corn and soybean markets continue to be under pressure as the money game of investment funds begins to unwind itself.
The growing conditions across the Corn Belt are improving and have shown that in the weekly crop reports. The markets will continue to be choppy as we have seen the last several weeks.
The U.S. Department of Agriculture will release on Aug. 12 the first crop production report that includes an actual survey of the crop. This report will start to shed some light on the real size of the crop and its condition.
There are many questions about basis, which has begun to improve from week to week. It remains much wider than we are used to and it will probably stay that way. Transportation problems continue to hamper grain movement, with trains as well as barge movement. The cost of fuel is not helping the situation. The frustration is high with basis and it could put producers in a real dilemma this fall.
Generally there is adequate on-farm storage going into fall but this year there may not be enough storage. It has nothing to do with the crop not being sold but rather the inability to deliver grain on time. The thought of delivering grain and starting harvest at the same time is not appealing. If we continue to have transportation issues the basis will not correct itself quickly.
This problem will drive producers to continue to find markets that will take grain and have competitive basis. Ethanol plants and livestock producers are going to be important markets this fall and winter. It will be critical to research these markets and know how they operate.
Unless circumstances change, July 3 was the peak in the market. September corn closed that day at $7.57 and is currently at $5.65. December corn closed at $7.77 and is trading at $5.85. History does repeat itself and generally a top will occur between Fathers Day and July 4.
It is 20/20 hindsight but the market is full of cycles and patterns that tend to repeat themselves. The same is true for soybeans, with August soybeans topping at $16.49 and now trading near $13.57. November soybeans were at $16.31 and are now around $13.65. The corn and soybean markets are correcting.
Another pattern that usually develops is that market will most likely over-correct as it probably went too high and will now go too low. There is no guarantee that pricing opportunities are all over, so as the market rebounds those will be great sales opportunities. Remember where we are in the history of grain prices; even though the market has sold off, prices are still historically high.
There is no question many of the market tools that were available last year have either disappeared or have a completely new set of rules to operate by. The tools once offered for free now cost something and that does not sit well with producers.
When the next run-up happens it will be imperative to understand how to hedge grain and do it very effectively. If grain is hedged correctly it allows much more flexibility to deliver grain to any location instead of having sales tied to a delivery point. It is important to learn from what we have been through — which is the beauty of 20/20 hindsight.

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