MarketsFarm — Corn and soybean futures at the Chicago Board of Trade may have run into some profit-taking resistance, but underlying concerns over wet fields and lost acres should keep the general uptrend in place heading through the summer.
“I don’t think this weather story is anywhere near over,” said Preston Zacharias of CHS Hedging’s Russell Consulting Group in Minnesota, adding “it’s not like a drought, when you can fix it with one rain.
“There’s an outright emergency here, and I can’t believe the market is so complacent with it,” he said, pointing to wet Midwestern weather and the resulting slow planting pace.
“I think the prevent-plant story is bigger than the market wants to acknowledge, and I think the yield penalty story is bigger than the market wants to acknowledge.”
Only 92 per cent of the U.S. corn crop having been seeded, as of Sunday, would infer eight million acres are unplanted. Much of what was seeded went in the ground later than normal, which cuts into yield potential.
By his math, Zacharias estimated yields would fall somewhere between 135 and 150 bushels per acre on a national level, with a possible loss to the overall crop of about three billion bushels. The U.S. Department of Agriculture is now forecasting corn yields at 166 bushels per acre.
As a result, Zacharias said, any down days in corn were buying opportunities, noting “the ship has sailed on buying cheaper corn; the longer-term trend is pointing higher.”
Soybean planting is also running well behind normal across the U.S., with the lateness likely cutting into yields.
Zacharias said large old-crop supplies must still be worked through, but the reduced production prospects should also be supportive. “The beans may have their own story, but we have to work through a billion bushels first to get to the good stuff.”
From a chart standpoint, “the only resistance left on corn is basically $5.19, the last high from about five years ago, and I don’t even think that stops it,” said Zacharias (all figures US$).
For soybeans he saw more resistance, with $10.60 “a formidable resistance on the front month.”
Soybeans will also continue to react to trade news. “If we have a trade deal, beans are a dollar too cheap instantly,” Zacharias said — although he added that market participants were getting tired of the back-and-forth lack of direction on the trade front.
As for wheat, Zacharias thought prices were cheap relative to corn. Kansas City wheat usually trades at premium of at least $1 per bushel over corn, but the front-month wheat contract was only 16 cents above the nearby corn futures on June 19. “Just on a relative price basis, wheat is a little too cheap here.”
If corn is rationed, livestock feeders and ethanol plants will look to alternatives, which would cut into wheat stocks and support prices, Zacharias said, noting “wheat is a passenger on the corn train.”
— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.