Chicago Board of Trade Market News
Outlook: A number of market participants have inquired about the longer term ramifications of current price actions: In response it is noted that U.S. farmers will need to move the majority of old crop grain out of the bins as the harvest takes place. As a result, there is plenty of grain for sale to meet current demand. It is sales demand, both domestic and export, that has weakened recently as buyers wait to see just how low prices will go as they attempt to buy at the very bottom.
Demand for feed grains is expected to pick up as a bottom becomes more evident on corn charts. However, there is an additional offsetting cost of higher freight rates as both rail and truck rates have recently been increasing in the face of a bumper harvest. Such factors mean that export sales could pick up more quickly than export shipments this fall as buyers seek to secure inexpensive product and then worry about logistics later. This condition will presumably result in storage, both on farm and off-farm, being fully utilized this season.
Recall that earlier this calendar year U.S. farmers were reluctant sellers in anticipation of higher prices. Virtually everyone recognized that a bumper crop was a possibility, but many producers were willing to take a chance and hold out for a possible scare that would drive prices higher during the current growing season – which obviously did not happen. Now that prices are already driven down to very low levels, U.S. farmers will have enough common sense not to practice panic selling at the bottom. However, those farmers who lack sufficient storage will need to move some grain. That product movement may weaken basis. The weaker prices, both cash and futures, is likely to result in reduced lease rates on farmland next season.
Soybeans have the advantage of requiring less storage, but corn has historically had the advantage of generating better returns – assuming of course that pollination goes off without any problems. While financially painful, U.S. farmers will have the financial means to deal with lower prices in the new-crop season. Alternatively South American and Black Sea farmers may struggle to plant corn next season because of the higher production costs. As a result, the longer-term outlook is that there could be some very wide swings in feed grain prices during the time period that stretches from this fall and two years out into the future.