Market Matters Blog
Pat Hill DTN Markets Editor

Friday 10/09/09
Big Crops Get Bigger -- Are You Sure?

I look forward to USDA reports almost as much as a trip to the dentist for a root canal. At the very most, it is interesting to see the reaction after another round of estimates. USDA increased corn production to over 13 billion bushels and soybean production to another record -- 3.25 bb. Traders seem to be taking the stance of not believing the hype Friday morning as row crops are rallying. How did the markets react? As of this writing, corn and soybeans are putting together solid rallies fueled by both sides of the market.

December corn since hitting a low of $3.02 in September has rallied almost 70 cents. How is this rally possible if the crop keeps getting bigger? Part of the reason is demand -- USDA estimates an all-time record of 800 mmt, leaving little margin for error, and world ending stocks are decreasing. Also, futures spreads have been weakening indicating underlying fundamentals are growing less bearish. If the crop was as big as mostly everyone believes it is common sense would say that the opposite should be taking place.

In soybeans, market action also makes me wonder whether this crop is as large as advertised. Spreads are weakening as well, with additional commercial buying interest strong this morning, indicating underlying fundamentals are growing more bullish. Deferred spreads are inverted, which paints an even more bullish picture. However, longer-term increases to world production if realized will weigh on prices.

Looking strictly at Friday's session, the market has simply disregarded the large numbers at this point in favor of bullish weather factors. A killing freeze is expected to take place over a large portion of crop land west of the Mississippi with parts of the eastern Corn Belt also being affected. How much damage it will do is anyone's guess, but there is no question that immature crops will be negatively impacted. Throw in for good measure overly wet conditions in the Delta and eastern Corn Belt, and you have a harvest that continues to be delayed. If U.S. production is slashed like Lanworth is projecting (see previous blog post by Pat Hill on Lanworth for more information), and also falls in line with what the spreads are telling us, then grains may be in for an extended rally if large demand projections are realized.

Stay tuned for what is sure to be an interesting next couple of months in Chicago.

-- by John Sanow, DTN/The Progressive Farmer Analyst
Posted at 11:03AM CDT 10/09/09
Comments (4)
Howcome the USDA always get bigger while agronomists and farmers believe it should be smaller. How do bean counters in offices across the land know something that we don't know? Do they have a crystal ball that tells them corn is going to reach the record set in 2004? How can all of us agronomist and farmers be so wrong? I just don't get it!
Posted by Daniel Davidson at 11:46AM CDT 10/09/09
No farmers are selling any grain. Middle Illinois, most farmers have on-farm storage, and drying capacity. Corn is being shelled at 25-30%, and the yields are down to 170 or less. The USDA has significant skin in the game for keeping the estimates high, as they help the large international marketers in keeping the price down as they accumulate paper. Then when the real numbers come in, their paper is worth more - profit abounds. Face it, farmers put high priced N on last fall, and chiseled with expensive fuel - plus paid high rent this year; break even is better than 4.00 at 185 bu/acre. If farmers sell for less than 4.00 - we are locking in a LOSS. I know I can only do that for one year or maybe two - then I am done.
Posted by Michael Dechy at 12:04PM CDT 10/09/09
It is nice to finally get some media coverage about the over estimated crops for the 2009 growing season. I agree with the previous blog that there is some very interesting positioning going on in the commodity markets in the past year. I believe that if we are going to estimate crops so far in advance we need to involve the hard working farmers that know and grow these crops.
Posted by Unknown at 11:19PM CDT 10/11/09
What the report said was: "Corn production for 2009/10 is forecast 63 million bushels higher with a 2.3-bushel-per-acre yield increase more than offsetting a 700,000 acre reduction in harvested area" Why didn't DTN report this fact. In the September 1 Crop Production Forecast page 39;"Revision Policy:The September 1 production forecast ...revision to planted acres will only be made when special survey data, administrative daya, such as Farm Service program "sign up" data, or remote sensing data are available" The report under Reliability : "Root Mean Square Error" in for corn for grain production forecast is 5.1 percent. That the difference will not exceed 8.9 percent
Posted by doug taylor at 9:32PM CDT 10/15/09
Post a Blog Comment:
Your Comment:
Post Comment
DTN reserves the right to delete comments posted to any of our blogs and forums, for reasons including profanity, libel, irrelevant personal attacks and advertisements.
Blog Home Pages
September2010  
S M T W T F S
         1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30      
Subscribe to Market Matters Blog RSS
Recent Blog Posts
  • Another Giant Step in Cash Wheat Bids
  • Here They Come
  • Quick Look in the Rearview Mirror
  • Cash Indexes Fall Back
  • Corn Yield Speculations, Early Maturity
  • FF Survey Shows Increased Acres in 2011
  • Cash Indexes Finish Mixed Monday
  • Early Corn Yields Talk
  • Cash Beans, Wheat Gain on Corn
  • NASS Surveyors at Work
  • Cash Indexes Advance
  • Agribiz Positive Outlook Confirmed
  • IGC Cuts Wheat Forecasts, Raises Corn Trade
  • Elevators Pull Cash Wheat Bids Lower
  • Storage Issues, Again or Already
  • Cash Indexes Ease Back
  • Random Comments on Corn
  • Parameters on Dec Corn
  • Wheat Indexes Firmer Monday
  • FAPRI Ups Price Forecasts