The 24th week of the year (this past week) proved to be typically volatile for corn and soybeans. Many times, if the prices are rallying into the week, a high will be entered into on the first trading day of the week. (Note, last year, December corn tested the winter high during this same timeframe. The harvest low for corn came during July and was retested during the Aug. 16 low.)
For corn, the key question is, has the market priced in crop losses and the extent of demand rationing? News coverage of the floods is becoming old news and even was secondary in the New York Times June 19. Corn has seen a $1.91 rally without much correction, so, should we be surprised by any corrections now? I suspect that a farmer should estimate his crop at 10 percent to 20 percent less and then sell up to half at this time. How can one argue with $7.50 to $8 corn? Unfortunately, many producers have sold new crop corn and old crop at $4.50 or less. In fact, much is sold for less than $4. Now those producers are in question as to how much to sell now -- especially, if they did not have their input costs locked up before cash sales were made. Could those be losing cash trades? No doubt, the futures is digesting $8 prices with the December contract having made a high of $7.91 on the electronic and, every month thereafter, seeing $8 plus.
Winter wheat crops in Brazil and Paraguay will be smaller this year because of frosts. Paraquay is estimated to have lost about 40 percent of its wheat, while Brazil's losses are estimated to be in a range of 500,000 metric tons to 1 million metric tons. Parana borders Paraquay to the east and both regions plant winter corn crops. My sources tell me that corn production losses may total as much as 1.5 million metric tons, which is about half of the corn that Brazil exported between January to May.
Many are comparing this year to the floods of 1993. As I have stated before, this year the floods are in the eastern Corn Belt and that year, they were in the western Corn Belt. A big difference.
USDA estimated that year that there were 76.6 million acres planted; 3.3 million acres were lost. While the crop already was in the ground when the floods hit that year, that is not the case this year. Some corn was emerged and some not planted, and that that had emerged was small in size.
ADVERTISEMENT
In 1993, the national yield was 124.3 bushels per acre, and when it was all said and done, the final yield was 100.7 bushels per acre. This year, the national trendline yield is 155.9 bushels per acre and USDA already has lowered the yield down to 148.9 bushels per acre based based on conditions as of June 1. However, if we just take the same potential yield reduction of of 155.9 bushels per acre, it would project a yield of 126 bushels per acre. Scary! It says highs may not be in yet.
Dry weather now for the next two weeks would be a godsend. Nebraska is seeing some replanting in ponded areas, but I have been over a chunk of the state, from the northwest corner to Newton, Iowa, not a tractor was in the fields. In many areas (not even areas where there is no river or stream), the ponds still are there and have a long way to go to dry out to support equipment. Any rain in the next two weeks will be too much.
We must watch for what we wish for, however. In 1993, it did not turn off hot and dry. Yields still had a tough go. If the decline this year is similar to that year, then we would have 10,775 billion bushels in production. Now, USDA currently estimates the usage at 12,525 billion bushels. Price needs to ration, and while there has been some switching for feed to wheat, wheat prices are on the uptick as well.
Basis December corn, support at 754 area (already there June 19), then 725 to 720. Would a drop in prices build up exports? Briefly, I still look for new contract highs on the July contract of soybeans by expiration. Thus far, it has been the July contract putting in the high for the year. Doubt that it stays that way.
