Farmers have a lot to be thankful for during the past year, with the highest prices ever for commodities this spring and summer that gave us some tremendous opportunities to get something sold for this year. Many producers took advantage of that, making at least some sales of 2008 crop at some great prices, while others made substantial sales (not only 2008, but 2009 through 2011 crops as well). The more you sold, the more you have to be thankful for.
Currently, the rapid decline in input prices (such as crude oil and fertilizer) also is a major beneficial development for agriculture. While local gas pump prices have dropped significantly, if gas declined like the futures market (down 65 percent), prices would be even lower at the pump. This indicates to Pro Ag that even more decline is expected in input costs, even at terminal locations.
Fertilizer is in the process of dropping significantly as well. Although seed producers make a passionate case for why seed prices can't drop, it would be hard to imagine a scenario in which they won't.
The affect on the production factory of farmers worldwide is expected to be sizable because of this recent price drop. Just when we got farmers excited about being in production agriculture again, we are pounding prices lower and drowning out any incentive to increase production in 2009. Private firms already are forecasting a reduction of 5 percent or more in world wheat planted acreage, and also a reduction in South American planted acreage of corn and soybeans. It is simply not reasonable to expect producers to keep expanding with a 50 percent cut in product prices in just 4 months.
Prices have stabilized recently, with the stock market reversing higher Nov. 28 in a dramatic upside reversal after testing lows. Stocks rose 12 percent in two days, the largest two-day rally since 1987's stock market crash. Jan soybeans formed a double bottom at $8.38 Nov. 21, with five weeks separating the lows.
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Wheat
The wheat market started the week off sharply higher with much of the strength because of spillover buying from a stronger overnight session as well as from an overall stronger feel to the commodities. Well after the grains had closed Nov. 21, the stock market was able to rally, ending sharply higher for the session after trading sharply lower for the session. This buying strength spilled over into the overnight session Nov. 23 and 24 markets. The U.S. dollar took a huge hit Nov. 24 and that added to the support. The U.S. Department of Agriculture's export inspections report was decent for wheat as it showed that the low prices are starting to encourage some export business. The rally was very good technically, but for this to be a full fledge rally, we need to see follow through.
The wheat market traded with little fan fare Nov. 25, not really knowing which direction to trade at times. The wheat market did open steady to slightly lower but managed to firm early in the session. By midsession the wheat markets were mostly unchanged looking for some news to give them direction. The dollar was trading sharply lower and that helped to limit session losses, but the losses in the crude oil market and instability in the Dow Jones caused wheat to drift. There was some news that a few countries are in tendering for wheat, which could have added some buying support, but the wheat just seemed to go anywhere. Trading has starting to slow down as most of the traders get ready to depart the pits ahead of the Thanksgiving holiday.
The session resulted in another day of watching paint dry as far as the wheat markets were concerned Nov. 26. Trading was thin and volume very light as many of the traders were absent from the pits. The wheat started off the session decent with most of the early activity centered on traders rolling long December trades to other months.
USDA put last week's wheat export inspections estimate at 22.3 million bushels. This compared with 15.3 million bushels for last week and 20.2 million bushels for last year. This does bring the year-to-date wheat shipments total to 589.5 million bushels compared with 687.3 million bushels for last year at this time. The export sales report was delayed because of the holiday.
Winter wheat emergence is estimated at 92 percent compared with 88 percent for last week and 91 percent for the five-year average. Winter wheat crop conditions are rated at 65 percent good/excellent, 27 percent fair, and 8 percent poor/very poor, a decrease of 1 percent from last week. This also compares to last year's rating of 44 percent good/excellent, 37 percent fair and 19 percent poor/very poor.
Corn
After falling to new lows Nov. 21, below the $3.50 support line, corn spent most of the week above it after Nov. 24's rally. Although this is a positive sign, we also have not broken significantly above the $3.50 support. From a technical standpoint, we don't have a very convincing display of strength in corn. This is especially true after corn dropped almost $4.50 since July -- a monumental price decline for the corn market. Realistically, corn prices have declined in four months by more than corn used to be worth.
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The dramatic turnaround in all commodity prices since July leaves us with a very bearish technical picture long term. But the problem with that bearish technical picture is that prices have changed so dramatically that no one seems to have any idea where corn prices can bottom.
While input costs are coming under control, it's likely these prices must drop even more in the coming months -- especially in interior locations in the U.S. Terminal prices are dropping so fast, it's hard to keep up with the changes. For now, input prices probably should be priced at half their summer values (whatever that happened to be). Actually, crude oil prices have dropped almost 65 percent, so these are even more dramatic changes in energy input costs than we've seen on the product side.
Pro Ag is getting to the point that we see little reason to sell cash corn right now, as prices already are below $3 cash at many northern locations. With a huge carry in futures markets (64 cents or more to December futures) and a weak basis, there is little incentive to sell cash corn now. That's where we simply would buy a put option in July forward futures, store corn, and wait for basis to improve and make the carry (40 cents to July). It's likely you will lock in a higher minimum price by doing so than a flat price selling cash today. For those with storage space, filling it full of corn is the best thing to do.
Soybeans
Soybean prices went sharply lower into Nov. 21, forming a double bottom on daily charts at the $8.38 January futures level. After bouncing higher Nov. 24, futures are trading about 50 cents higher than the Nov. 21 lows, making it look like this potential double bottom will hold. It's also a positive sign that soybeans are forming this double bottom almost five weeks apart. Could it be that commodities have bottomed for now?
In our opinion, this becomes a low risk entry point to take a stab at the long side of the market. Of course, there is almost no one who is bullish about the market now, even though prices are half their summer values. It's amazing, but the whole complete has turned bearish, even while there are signs of some bullish fundamentals developing: Soybean export shipments and sales have been outstanding to date -- well ahead of projections. Soybean planted acreage estimates in South America continue to drop (along with 2009 world wheat planted acreage estimates) as the price drop has become a disincentive to produce.
With the upside reversal in the stock market Nov 21, there is a possibility that prices may have finally found a bottom. At this stage, we also have a well defined risk point of entry, as we are within 50 cents of the recent lows.
Barley
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USDA estimated last week's barley shipment's pace at 1.368 million bushels. This compares with 20,000 bushels for last week and 2.097 million bushels for last year at this time. This brings the year-to-date export shipments pace for barley to 9.8 million bushels compared with 20.2 million bushels for last year at this time. Cash barley bids in Minneapolis continue to decline. Cash feed barley bids dropped 25 cents this week to end at $2.50. Malting barley bids remain at $5.
Canola
The Winnipeg, Manitoba, canola futures market started the Thanksgiving week with small gains on Nov. 24, but those gains were erased on Nov. 25 as the market fell prey to selling. By the end of Nov. 25, all contracts were posting small losses for the week. These losses were accelerated in the Nov. 26 session. Unlike the U.S. markets, the Winnipeg canola market will trade all week, but do not expect a lot of activity because of the lack of direction from the U.S. markets. Strength on Nov. 21 was a result of spillover buying from a sharply higher U.S. soybean complex and strength in the US energy sector. A stronger Canadian dollar limited session gains, as did continued slow export demand reports. The session brought selling back into the canola pit Nov. 25 with most of the pressure a result of the lack of direction in the U.S. soybean complex and spillover selling from a sharply lower U.S. energy complex. Domestic demand remains decent but that is not enough to deplete the huge supply of canola in Canada. Cash canola bids Nov. 26 in Velva, N.D., were at $14.67.
Sunflowers
As of Nov 23, 85 percent of the sunflower crop has been harvested. This compares with 77 percent for last week and 97 percent for the five-year average. South Dakota continues to trial in harvest activity, the worst estimate being 26 percent behind the five-year average pace. Cash sunflower bids on Nov. 25 in Fargo were at $15.20.
