World grain markets acted like it was St. Patrick’s Day in Dublin when the U.S. Department of Agriculture released its Jan. 11 report on crop supply, demand and seeded acreage.
But Oklahoma State University analyst Kim Anderson sensed that the euphoria would be followed by a hangover.
And where the market would be by the end of this week was impossible to say Jan. 14, when The Western Producer went to press.
“It sounded good, but normally it takes a couple of days for the market to work through new news,” said Anderson.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
“It takes a couple of days for (analysts) to make the phone calls, analyze the data and then things tend to find a new equilibrium.”
The price action was dramatic after the release of the Jan. 11 reports. USDA reduced its estimate of the U.S. corn crop, increased its consumption estimate and dropped its ending stocks estimate. It also said farmers had seeded fewer acres of winter wheat than analysts had expected. There was only a four percent increase in hard red winter wheat acres compared to average analysts’ guesses of eight percent. Both nearby and 2008-09 prices shot higher, with some commodities rising the daily limits.
March corn, for example, opened up 20 cents per bushel on the Chicago Board of Trade futures March contract – its limit – and stayed there all day. On Jan. 14 it opened up a further 17 cents and quickly rose the remaining three to the upper daily limit of $5.15 per bu.
However, by midday Monday corn weakened and fell back the three cents it had gained from the opening. Greater weakness was seen in other commodities that had also risen, including soybeans and wheat.
But for 2008-09 futures, many contracts closed limit-up Jan. 14, including Minneapolis hard red spring wheat. Chicago corn was close to limit-up for new crop futures for all contracts up to the beginning of the 2009-10 crop year.
Winnipeg Commodity Exchange canola rose dramatically on the day of the report as well, by about $25 per tonne, but by Jan. 14 the meteoric rise stalled, with March contract prices opening and closing at about $573 per tonne after attempting to move higher during the session.
Chicago nearby soybeans initially soared on Jan. 14, continuing the Friday rally, reaching over $13.40 per bu., before falling back to close at $12.97.
Wild volatility like this has been seen before, said Joe Victor of Allendale Inc. in Chicago, but not since the mid-1990s.
There was major volatility in 1995 when a good spring seeding season was followed by a dry summer. In 1993 there were big swings when a big Midwest flood struck corn and soybean territory.
And 1988 was the year of the severe drought.
The difference now is that this sudden volatility isn’t due to weather damage, but to farmers’ fall decisions on winter crops acreage and to consumption estimates. The shortfall in expected wheat acreage might be made up this spring.
“The spring plantings (of wheat) can make up for a great deal of this difference,” said Victor.
“Because of the aggressive nature of the Minneapolis Grain Exchange futures, they’re going to make sure to try to buy every acre possible.”
That might be bad for wheat prices in the long term, but would help prices for any commodity that loses acreage to wheat.
Soon, however, high prices will start killing demand, Victor said, a factor that is already occurring in the livestock industry.
“Sooner or later the bleeding will start to show. We can already see it in the cattle and hog market,” Victor said.
