It is not often that Prairie farmers enjoy rising prices as they harvest their crop.
Harvest usually pressures prices down as grain enters the handling system, but this year, rising worries about U.S. corn and soybean crops are lifting all crop prices.
On Aug. 29, the U.S. Department of Agriculture’s weekly crop condition report cut the status of corn and soybean crops by more than expected and conditions were expected to deteriorate again this week because of hot, dry weather.
The last time the corn crop was rated this poorly was 2005 and that year the average corn yield fell to 148 bushels per acre.
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Last week, an industry tour of the Midwest that inspected hundreds of corn and soybean fields pegged U.S. corn yield this year at, surprise, surprise, 147.9 bu., almost dead on the 2005 yield and well down from the USDA’s Aug. 11 forecast of 153 bu. per acre.
The tour pegged soybean yield at 41.8 bu. per acre, compared with the USDA’s forecast of 41.4 bu.
The market is also worried about poor wheat yields in North Dakota and the southern plains drought that could reduce the amount of winter wheat seeded in the U.S.
Also supporting grain prices was speculation that the U.S. Federal Reserve this autumn might try another round of stimulus for the moribund economy.
In a speech Aug. 26, Fed chairperson Ben Bernanke kept his options open.
The process is complicated to explain, but the result is an increase of the money supply. Such policies tend to stimulate inflation and weaken the U.S. dollar and those impacts tend to cause commodity prices to rise.
Although Bernanke might favour monetary stimulus, he faces opposition from others on the central bank and from the Republican Party.
Even if the Fed acts, there is danger ahead. The only reason a stimulus program is being considered is that the U.S. economy has one foot in recession territory and the other on a banana peel. Also, several European countries are on the cusp of financial ruin.
The potential for another market meltdown and prolonged economic stagnation is real. In that context, it is wise to use this grain market rally to price some of your grain.
