Thursday’s long-anticipated reports from USDA both surprised grain analysts and in some ways met the expectations of others. The surprise came from the mostly bearish grain numbers for both domestic and world supplies of grain. However, traders were expecting fireworks from the markets in the wake of the report’s release and they certainly got plenty of both bright lights and loud noises. The biggest bang came from the domestic Crop Production numbers, particularly corn. The pre-report estimates from analysts were expecting a reduction of about 50 million bushels for production of corn in 2011. What USDA reported was actually an increase of almost 50 million bushels compared to the December report. That carried right through to projected ending stocks, with an increase of nearly 100 million bushels of corn next fall, when compared to last month’s projections.
The grain markets threw a New Year’s party and the bulls had plenty of fun. For the week ended Tuesday, March Corn futures were up more than 25 cents, with May up almost 26 and July up nearly 27. New-crop December corn was the sober one in the bunch, gaining less than 13 cents for the same time period. Hot and dry conditions in Brazil and Argentina during the critical pollination period was the main fundamental factor on traders’ minds in the slow holiday trade, but strong moves by outside markets on Tuesday helped double the gains seen late the previous week. It is becoming increasingly apparent that many commercial interests believe that old-crop corn supplies could be very tight before the as yet unplanted crop starts rolling in next fall.
Traders and analysts seemed to have either taken last week off for Thanksgiving or spent more time with the holiday wine bottle than advisable. At least that’s how it looks when you look at market trends for the past week. Let’s see, Corn futures prices were near steady, but soybeans were sharply lower while wheat prices were near unchanged except for the March contract in Chicago, which was up 13 cents. The cattle futures markets, both for live and feeder cattle, were all lower, but cash prices for both classes were sharply higher. Of course hog prices were their usual unpredictable selves thanks to virtually no true cash trade.
Wheat prices led the grains complex higher this past week. That’s a statement that hasn’t been made many times in the past year or two, but the wheat futures markets in both Chicago and Kansas City showed unexpected strength this week. Perhaps more impressive than the actual price increases were the changes in the spreads between contract months. In Chicago, the December contract was up 27 cents for the week ended Tuesday, while the March contract gained almost 14. That reduced the carry between the two contracts from almost 36 cents to less than 23.
Grain prices blasted higher again this past week, as traders and analysts become ever more convinced that the fall harvest of corn and soybeans is going to be a major disappointment. Expanding areas of drought, the true impact of flooding on harvestable acres and yield, and other weather factors are becoming clearer to futures traders, and that clearing vision looks like record prices to many of them. December Corn futures closed Tuesday, Aug. 30, at more than $7.75 and eight dollar new-crop corn is now on the minds of many, if not most grain merchandisers. The September corn contract gained more than 33 cents for the week ended Tuesday, with the December up nearly 32 and March up more than 32 cents. One of the biggest questions now on the minds of market-watchers is whether the struggling economy can afford these price levels, or if a slackening of demand could result in a price retrenchment later.
