Short Term Downtrend in Commodity Prices Expected
Even though the long term outlook for corn, soybeans, and wheat remains bullish a short term price break appears to be developing. There are several reasons to believe this scenario. First, the early 2012 harvest has begun in the U.S. Short crop or not the harvest period has a tendency to pull commodity prices down in the near term. Second, corn and soybean futures contracts (nearby contract months compared to the distant months) remain inverted albeit at a reduced difference compared to a couple of weeks ago. Second, the highs appear to be getting lower. Dec ‘12 corn futures topped at $8.49 per bushel on August 10, hit a high of $8.06 per bushel in Wednesday’s trade and are currently posted at $7.94 per bushel. Nov ‘12 soybean futures topped at $17.89 on September 4, hit a high of $17.69 on Wednesday and are currently posted at $17.42 per bushel. The weakening of the inverted spreads may well be a signal that the markets are due for a correction. Third, a record large long-futures position held by noncommercial traders in soybean futures is expected to result in profit taking, while stepping to the sidelines with the intention of coming back at a lower price. In other words, Dec ‘12 corn futures could be working toward a test of support in the vicinity of $7.86 per bushel. Nov ’12 soybean futures could be looking to test support in the $15.70 to $15.65 area. (Source: DTN)
Fundamentally, these markets remain long term bullish. The futures market is expected to remain in a sideways to down trend for the remainder of this week going into the September 12th USDA Supply and Demand report. The impact of the September report may turn out to be significant in so far as we have seen a reduction in U.S. corn exports falling about 54 million bushels shy of reaching USDA’s 1.55 billion bushel projection. However, yield reports on the first 10% of the U.S. corn harvest have been disappointing with the idea forming that 2012 U.S. corn production may be hard pressed to achieve USDA’s August forecast of 123.4 bushels per acre.
U.S. soybeans managed to top USDA’s ‘11/‘12 marketing year export market projection of 1.35 billion bushels by 15.5 million bushels. Rumors are circulating that dry weather in the Southern Hemisphere may hamper South America’s crop development beginning with delayed plantings.
U.S. wheat exports are on pace with USDA’s projection of 1.2 billion bushels, although inspections for shipment are running roughly 15% behind schedule. On August 10 July ‘13 SRW wheat futures hit a high of $8.68 per bushel and are currently posted at $8.60 per bushel. Continued dry weather in the Southern Plains with the date for fall wheat plantings rapidly approaching is having an impact on 2013 wheat futures prices. Hopefully, we will be able to get a better handle on world wheat production projections in USDA’s September report.
Market Strategy
Fundamentally the markets remain long term bullish. However, we can expect a short term downtrend in Dec ‘12 corn and Nov ‘12 soybean futures due to the need for the bull to be fed with new news. U.S. and world supplies for corn and soybeans will be tight going into the 2013 cropping season. Making sales for next year’s intended production of corn and soybeans should be considered on a very limited basis. Taking an initial forward cash sale for 2013 SRW wheat based upon the July ‘13 futures contract recently making a new life-of- contract high should be considered. It might not be a bad idea to cover the downside price risk of any new crop (2012) corn or soybeans held in storage for sale at a later date.
For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.