Through Oct. 25, only 20% of this year's corn harvest had been put in the bin. Only 44% of the soybeans had been harvested. As the graph shows, this is the slowest harvest since USDA began keeping track in 1985. The multi-million dollar question: Will prices keep going higher?
Before digging into the details, let me remind everyone of an old marketing rule of thumb: Supply-driven bull markets peak early, when the news is most obvious. Apply that to this year. The market has rallied because harvest is clearly not going well and people are afraid the crops will never make it out of the field.
When will the eventual outcome be most obvious? Just before, during or close to the end of harvest. The last time harvest was even close to this slow was in the 1993-1994 marketing season. That year the top price for cash corn for the marketing year was in January.
This market is different, however, than any we have ever seen.
Consider the following: Reported yields are still record high in both corn and soybeans throughout most of the Corn Belt.
Lower test weights in corn will keep yields from exceeding the high 160-bu. national average yield level.
Moisture readings are near record highs, as well, and the crop is not drying down. Drying capacity was not built to handle this quantity of wet crops, which will further delay harvest.
On the demand side, ethanol is ramping up rapidly. Outside forces are more significant than ever. The value of the dollar, the worldwide economy, energy prices and index funds are providing more volatility than we have ever seen.
Put this all together and what you have is a mess that makes it very difficult to make decisions.
No one knows for certain where the absolute top of this market is going to reach. My guess would be between the time the ink dries on this article and mid-January — more than likely the sooner part of this timeframe than the latter.
This is a market that buyers should not chase and sellers should be making sales on any significant rallies between now and the end of the year. Once the crop is in the bin, basis levels will start to soften as buyers' needs get filled.
What is important in this type of a market is to try to separate fact from emotion. When farmers can't get the crop harvested, most become emotional, and sound reasoning often goes out the back door. Let me try to summarize the situation:
U.S. farmers are still going to harvest a near-record corn and soybean crop. It's going to take longer to harvest both crops than normal, but it eventually will get in the bin and yield losses are going to be minimal. It's just going to be expensive to dry it down and put it in storage.
The world is still in a deflationary environment. Following a stab up in crude oil prices in mid-October as well as a drop in the value of the U.S. dollar, both trends are reversing as October comes to an end, which means the long-term deflationary spiral in the general economy is not yet over.
$9.50 soybeans and $3.75 corn are profitable. These prices are higher than the market will likely average this marketing season.
Richard Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.