It's been a long time since I can remember a harvest season as difficult and as unusual as this year. Snow hit the central Corn Belt the second week of October, and many crops didn't reach maturity.
The question among many farmers: Is this bull market for real or will it end just as quickly as it started?
Without knowing the exact answer to this question, let's first try to quantify how much damage has actually been done to this crop.
In the October crop report, USDA pegged this year's corn yield at 164.2 bu./acre with a total crop size of 13.018 billion bushels. Some may disagree, but I think these numbers are fairly accurate.
The crop will be harvested, despite weather delays. However, lack of maturity caused test weights to be down. In fact, a lot of early corn was harvested at 25-34% moisture, and much of the crop didn't dry down below 20% this year.
On the positive side, improved genetics allowed corn to keep standing through harvest. Combining some poor corn yields with much above-expected corn yields in Iowa and Nebraska and even with lower test weights, the final 164 bu./acre yield is probably not that far off.
THE CHART SHOWS the most bullish fundamental in the grain markets. Ethanol prices exploded in September and October rising from $1.40 to $1.90/gal. The spread that had widened between gasoline and ethanol has now been narrowed.
Most plants are operating profitably and margins that are now available will continue to bring idled plants back to operation. Last spring 36 plants were idled; that number has now dropped to less than 24.
World demand is also increasing as the price of sugar has doubled in the last year, making ethanol in Brazil more of an economic challenge. Less ethanol will be imported and we could even see some export opportunities.
The bottom for corn and soybean prices for this marketing year is already in. It's very unlikely that corn and soybean prices will get back to the lows established in early September in the case of corn or in early October, as is the case in soybeans. Technical traders will be looking for December corn futures to rally to approximately $4.15 where the markets left a gap in the charts on June 22.
In the case of soybeans, $11 is certainly not out of the realm of reasonable expectations ? but could be a long shot. This is now a weather (supply driven) bull market which means the peak will likely occur during or just after harvest.
Selling at least something at higher prices now after harvest will likely turn out to be a good strategy.
One of the more difficult crops to get in the bin this year was soybeans. They were late to mature, and the northern Corn Belt got hit with snow which made them much more difficult to harvest than corn.
Nevertheless, USDA's forecasted average for a national yield of 42.4 bu./acre could be pretty close. This is the first year where genetic improvements in soybeans are starting to show up in abundance. But as in corn, harvest stretched over a longer period of time.
Richard Brock is president of BrockAssociates, a farm market advisory firm, and publisher of The Brock Report. Fora trial subscription and information onBrock services, call 800-558-3431 orvisit www.brockreport.com.