CHALLENGES AND OPPORTUNITIES SOUTH OF THE BORDER
THE GRAIN MARKETS have proven to be very interesting this fall. Between one of the slowest harvests for both soybeans and corn on record, constant China purchases of soybeans and dramatic fund short covering in wheat, all markets have had nice rallies since September lows.
One of the daily supporting factors in this rally has been the weakness of the US dollar index. From 2000 to 2008 the US dollar did little but get weaker. During that time I never once mentioned the dollar when talking about the grain market. Today it is the first thing I have to check each morning to determine the direction of the market. I believe this is simply a fad, that someday will pass but until it does we must live with it. Therefore, as a result of this fad, market fundamentals can often take a back burner to investment money flows in and out of commodities.
Looking at the corn numbers it appears we will finish this 2009-10 crop year with a very comfortable corn carryout between 1.5 to 1.7 billion bushels. This is similar to the corn carryout the last two years. We could stand to have an additional two to three million corn acres planted next year and from time to time the market may have to work to insure this gets done. However, the necessity of market influence is unknown as two to three million acres will be coming out of the Conservation Reserve Program, which encourages farmers to take highly erodible land out of production and convert it to vegetative cover.
Soybeans from South America
The soybean market always likes a growing season to fret about, and luckily, it gets two of those a year; one in North America and another in South America. Currently there is concern about the soybean crop conditions in South America. The estimates are calling for the largest crop ever grown in South America to be harvested starting in March and April. One year ago, the trade believed Argentina was going to harvest a record 50 million tonne soybean crop which, as a result of drought, finished closer to 32 million tonnes. Thus the soybean market continues to carry a premium for weather problems in South America. Should the crops be as large as currently estimated, this premium could leave the market once it feels comfortable the crop will get to the bin.
Wheat Market Opportunities
The wheat market, in particular, is interesting when considering fundamentals and investment money. With the wheat carryout approaching 900 million bushels in the US, and a growing world wheat carryout one would expect much lower prices than we see today. But with the index funds buying approximately 915 million bushels of SRW wheat on paper in Chicago, and knowing the total 2009 SRW wheat crop in the US was 404 million bushels, one can see where the distortion comes from. For whatever reason these funds are giving us nice pricing opportunities, not only in the old crop but also in the 2010 and the 2011 crop years. •