Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu
Will High Commodity Prices Slow Demand?
In light of the fact that commodity prices have surged higher this week with new crop corn (currently at $7.85/bu.) and soybeans (currently at $15.55/bu.) within striking distance of their life of contract highs, established on June 16th ($7.91/bu. and $15.64/bu., respectively), one has to wonder whether the current price levels will begin to curtail demand – thereby resulting in prices moving lower. New crop wheat, now at $9.27 per bushel is within a nickel of resistance at $9.31/bushel made on June 19th. Even though the weekly export sales report was reported as bullish for soybeans, bullish to neutral for corn, and bullish for wheat there are signs contained in the report that might be signaling a reversal is coming. Corn, for example, placed combined (old crop and new crop) exports at 15.9 million bushels, which was below the low end of expectations. Corn shipments at 38.7 mb were also below the 46.4 mb need to stay on pace with projected exports. Another sign that things could turn south in the near term is that Argentina is back online for exports.
Marketing Strategy
On Monday, June 30th USDA will release the June 30th Actual Plantings report for U.S. farmers. On July 11th the next Supply and Demand report for the U.S. and World will be released. It will be interesting to see just how complete those reports are considered to be? We are in a fast moving market that is being driven by many factors, several of which have been previously suggested: the value of the U.S. dollar index (now at 72.9); the price of crude oil (now at $138.85/barrel); global demand; and index funds. A new factor is being added in market analysts’ jargon this morning – inflation. Nevertheless, the task of marketing one’s crops has gotten increasingly difficult with the new found price equilibriums that we are working with. Some advise making scale up sales while others have advised selling about 1/3 of intended production up to now, primarily via forward cash contracts. At current price levels, one should consider advancing sales for new crop corn and soybeans bringing the total up to the 40-50% level of intended production, if not done so already. The preferred method is to use a forward cash contract sale. If the cash sale is not available and/or producing the bushels is not a given then the purchase of the put option should be used. The weekly crop conditions report, which improved the rating for corn by 2 points this week over last week (59% U.S. corn rated good to excellent) could show another improvement next Monday, June 30th. The only certainty in these markets at the present time is that we can expect extreme price volatility to continue for the foreseeable future.
On a final note, U.S. wheat production is likely to be thrown a wringer in that wheat (being a small grain) is a dry weather crop – meaning wheat does best when growing conditions are on the drier side. Overly wet conditions this spring will most likely cut into the quality, test weights, and yields of the U.S. soft red winter wheat crop that is now in the process of being harvested.
For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.