The bear is back in corn and soybean markets

By Doug Tenney, Leist Mercantile

Producers met lunch on March 28 with a huge, rude, and unpleasant bearish surprise with the noon USDA crop reports. That day was the long awaited quarterly grain stocks and planting intentions report. Prior to the report many had expected the quarterly stocks report to be the major number to watch. That was certainly the case when corn stocks as of March 1, 2013 were 5.399 billion bushels. That was 386 million bushels higher than traders had expected. It was the largest “miss” for the trade ever for this report. Put another way, that number was over half of the previously projected ending stocks number of 632 million bushels.

Prior to the report various analysts continued to predict corn could see higher prices ahead as the market needed to ration an additional 100 to 300 million bushels of corn. Two major forces at work to ration grains are either price or basis. You have to get price and or the basis high enough, long enough to pull bushels into the needed area or out of farmer storage. If prices get too expensive, other grains will be substituted as the cheaper alternative. Imagine the frustration for those producers who have plenty of bin space, choosing instead to

Don’t poke the bear.

place corn into storage last fall. They passed and ignored the $8 level of last summer, only to find themselves six months later with corn struggling to reach even seven dollars. This followed the bearish stocks report with corn down the 40-cent limit and another 20 cents lower the following day.

The vessel lineup in Brazil is not shrinking in spite of soybean harvest being at least 60% completed as of late March. From various sources, I have pieced together a harvest scenario that we in the U.S. would find staggering. Major efforts have been made in recent years to increase acres in production a

s well as yield. The harvest in Brazil is expected to be near 82 million tons. In recent years it has only been 65 million tons. Infrastructure is lacking to be able to handle this large crop in only a few weeks time. In fact it could take months for harvested soybeans to reach ports and the waiting ships. Truck lines to one of the major ports in Brazil at times reached 15 miles. Some trucks are driving up to 1,000 miles per load, taking as long as two weeks to make the round trip on roads so bad that axles are often broken. It’s no wonder a large Brazilian farmer bought 200 new trucks to handle the expected trucking delays. Recent government restrictions limit the hours a driver can drive each day.

In addition, drivers have to have the necessary papers and registration completed in order to dump their loads at grain facilities. Imagine driving for several days, then being sent home because papers are not in order. You can only picture the tempers and frustration flaring up at the elevator truck scale. Truck freight costs are up at least 30% compared to last year.

The ports of Santos and Paranagua are seeing vessel lineups of over 200 ships that could take 60 to 70 days to load. Those boats are expected to load at least 12 million tons of soybeans, twice the amount in line last year at this time. One report stated that many of those boats often do not have a destination or cargo as they arrive at the ports and then move into the queue. Once a cargo and destination are detailed, the boat would move up closer to the front of the line. All of us have been to a major city and seen the multitude of taxicabs at hotels or the airport in line as they wait for a paying customer. Two months is a long time to wait for a paying customer to show up.

Following the very bearish stocks report of March 28, some think old crop corn could drop a dollar from the report values when July CME corn was $6.76. Others think December new crop corn could reach $4.50.

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