With the start of a new football season comes the search for fresh story lines. Which team made the best free-agent signings? Which team drafted the best young talent? Who made coaching changes? Story lines emerge like that say this team promises to be much improved, and that team is sliding backwards.
Grain markets are the same way. Market observers search for - and create - story lines for each new crop year. The story line for the 2016 crop started last fall. We all heard it, but allow me to refresh your memory.
The story went like this…
El-Nino is dying and a strong La-Nina will replace it. With La-Nina comes poor growing conditions in the Corn Belt and a crop on the edge of disaster. This story line was detailed in a video released last fall by WeatherTrends360, and repeated many times by many different players over the first half of 2016.
Take this story line, add to it a lively export market for corn and soybeans, and you have a strong spring rally in prices driven by strong demand and the anticipation of production problems to come. It was a great story line and, looking back on the sharp rally in the first-half of June, too many people bought it because it never happened.
The much-anticipated crop problems of 2016 have yet to make an appearance. Corn and soybean conditions, as published by USDA in weekly Crop Progress reports, started strong with the earliest reports and stayed strong. An old saying says that “July makes the corn crop” and by the end of July this year, corn conditions were very good.
The crop conditions ratings as we know them today started in 1986, and conditions this year were on a par with some of the best years recorded, including 2014, 2004, 2000, 1994, 1992, 1987 and 1986. In all of these years except 2000, the U.S. set national corn yield records. The soybean crop is also two thumbs-up, as conditions in early August were on a par with 2014, 2004, 1994, 1992 and 1987. In all of these years except 1987, the U.S. set national soybean yield records.
And then a familiar story line emerges…
During the month of July, a different story line emerged, and it looks very familiar. It is the same story line used in 2014 and 2015; above trend-line (and possibly record) yields and large crops. Corn and soybean demand is good, but supply is - and pardon my English - gooder. The bears remain in control. They will remain there until the world experiences a supply shock or Black Swan event that will tip the balance of demand vs. supply and send prices higher. We are still waiting.
The same story line from the last two years calls for a similar approach to marketing after harvest. Get realistic with your price expectations – post harvest price increases of 30-50 cents in corn and 70-100 cents in soybeans sound reasonable to me. Let’s hope they happen and, if they do, stay committed to selling rallies.