Tucker Talk: January 21

Soybeans

More people in Box Butte County are talking about soybeans these days so I thought I would include a little market information.  Export loadings are up from last week but are still 11% behind last year and 8% behind USDA estimates.  Informa increased their soybean planting acreage estimate by 2.5 million acres from 2015 on Tuesday with some acres shifting from corn to soybeans.  The shift in acreage may be due to a possible mass exodus of producers from corn to soybeans because soybeans are cheaper to grow.  Returns for soybean, although still negative, are currently better than corn and could be considerably better if weather does not cooperate and yields move back to average from the high levels we have seen the last two years.

Corn

There has been a welcome $0.18 rally over the last 2 weeks bringing corn back up to a $3.20-$3.25 cash price range but it is being offset by weakening basis levels.  The rally has been attributed to short covering of managed money that was short 195 thousand contracts on Friday.  After the funds stop buying, we will need another reason for them to continue buying corn contracts to drive the prices up.  We have seen some corn movement across the country but mostly from elevators moving corn in preparation for the coming year.  Producers are still not selling and are instead taking advantage of delayed pricing programs in order to let the elevators move the grain.

I have been talking about the El Nino/La Nina pattern and its importance to 2016 prices.  El Nino is attributed to granting our excellent yields over the last two years and has recently started moving to a neutral position.  If it stays neutral for another year then we will probably see good yields again, however, if it moves into a La Nina, it could result in drought conditions and cause reductions in supply.  Unfortunately, this is what is needed to drive prices up to profitable levels.

The first chart below is an interesting chart of the El Nino/La Nina pattern with an overlay of corn futures.  When the gray line is above the horizontal black line, it is a strong El Nino and when it is below it, it is a La Nina.  As you can see, there is an inverse relationship between the El Nino/La Nina and corn futures.  The second chart shows seasonal December corn futures in years with high carryout similar to the 2016 year we are currently entering.  The transition to a La Nina event occurred in 2007, going into 2008 and in 2010 and the impacts on prices can be seen in the second chart.  It is interesting to compare the two charts and one conclusion I can make is that unless we transition to a strong La Nina, the highest prices we see for new crop may be in the February-March period.  It may be a good idea to forward contract some during this time period to reduce your risk.

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El Nino Index vs Corn Futures.

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Seasonal December Corn Futures

 

 

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Tucker Talk: January 8

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A little green to warm your soul.

Corn closed $0.04 higher today, the first positive day since the Monday before Christmas.  Most of the rally is attributed to fund movement.  Monday this week saw significant losses in all commodities after as Chinese stock market drop the night before.  On Sunday night, Chinese manufacturing data came in bearish at the same time as a major devaluation of the Chinese Yuan from the government.  The Chinese stock market dropped the limit on Sunday night forcing shut down and again later in the week.  This weighed heavily on commodity prices this week so the rally today is welcome.

The main force working against U.S. commodity prices is the strong value of the dollar relative to other world currencies.  The U.S. commodities are expensive and have resulted in exports for corn being 25% behind last year and 19% below the USDA estimates in the December supply and demand report.  The next major mover and shaker in the markets will be the January supply and demand and stocks and acreage reports.  Trade is currently debating numbers for export changes, South America production, feed usage, and prevent plant acreage usage.  The overarching story remains the same however, world supply is plentiful for all commodities and this will only change if there is a major event that has drastic impacts on this year’s production (weather is usually the culprit).

On a positive note, we often forget that world demand for corn and wheat continues to increase every year.  Depressed prices draw more consumers and end-users that increase demand further.  If demand makes some major increases, then prices go up.  This is economics 101.