By Doug Tenney, Leist Mercantile
Corn and soybean harvest is winding down for Ohio’s grain producers. Yields across Ohio are all over the board. While many report they had corn yields above 200 bushels, it was only for a fleeting moment, and certainly not a farm average. Then yields would drop to zero in the same trip across the field. There were rare instances of corn yields averaging above 200 bushels for entire fields. Those yields did happen for those who have irrigation pivots in Ohio. However, those are pretty rare. Others will give ample thought to putting new irrigation systems in Ohio, but it will be few and far between. It certainly was not a fun year for producers as the number of trucks required to haul corn to the bins or to town was considerably below those numbers of several previous years.
At the end of October, the list of market factors has changed slightly and now includes four key items. One is South American weather. Two, demand for old crop corn and soybeans in the U.S. Three, world wheat trade and 2013 crop outlook. Four, fund money flow and the world economy.
Weather in South America continues to be a big deal. Higher soybean prices have encouraged producers to plant in both Brazil and Argentina. Acres are up in both countries from last year. USDA has projected record production in Brazil at 81 million tons and Argentina at 55 million tons. Demand for soybeans across the world is growing led by a voracious appetite from China. They are expected to import 61 million tons in the coming year. Earlier this fall Argentina sold 600,000 tons of corn to U.S. livestock feeders for import along the East Coast. At that time, corn in Argentina was $50 per ton cheaper than U.S. corn excluding freight.
U.S. corn exports continue to be very slow. USDA’s recent projection was just 1.15 billion bushels for the coming year. This is the smallest number in at least 20 years. But before you get too bearish, think for a moment what is happening. U.S. corn is more expensive than other available corn supplies. In coming weeks and months, those excess supplies will be purchased. As those excesses are reduced, it will force world buyers to once again come to the U.S.
Producers this fall moved quite a bit of corn into the pipeline. Quality was down and bids were very strong. In numerous locations in Ohio and the Midwest there was very little price incentive to hold corn beyond this fall. Some project that corn basis levels could improve an additional 10 to 25 cents beyond the abnormally strong harvest basis levels. In central Ohio at the end of October, January 2013 corn was just six cents higher than October 2012. Basis levels for January corn were March plus 22 cents. Funds have been reducing their long grain positions compared to levels seen six months ago. They need to see a reason to be optimistic about grain prices to continue participating in grain contracts.
In coming months you are going to see more and more about the CME possibly reducing their current trading hours for grains to something less than its current 21 hours. Grain giant, Bunge, has been leading the charge for reducing trading hours at the CME. Earlier this year, the CME expanded its hours when the ICE exchange added grain contracts to its family of contracts. It was a move to prevent ICE from gaining any traction in the tremendous volumes seen at the CME. Grain contract volume at the ICE has been very, very small. Some would suggest the extra hours have actually reduced grain volume. Recent reports from the CME indicate trade volume in recent months was down 33% compared to that of a year ago. Noticeably absent is the trading bump seen when the pits used to open at 10:30 am eastern time each morning.
In coming weeks look for the trend of grain fundamentals playing a small part in grain price movement to continue. Money flow will become even more important in price discovery for grains.