U.S. crop futures have been caught in a trading range recently, but analysts warn only speculative money is preventing a fall.
“It’s fundamentally very weak, but you’ve got all this outside money flowing into it. It’s forcing the shorts (sellers) out,” said Mike Krueger of the Money Farm in Fargo, North Dakota.
“I think any bullish feel is strictly because of the idea that there’s new money out there coming into the crops.”
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Analysts said the Nov. 10 U.S. Department of Agriculture crop report should have depressed prices, but the market rose thanks to investors moving into commodities.
Some analysts believe that’s why crop prices have been range-bound for weeks. Wheat has especially weak supply and demand factors but is being saved by speculative investment money taking long (buy) positions.
That is creating volatility as fundamentals-based traders and speculative investors move in opposite directions.
“Although the market (for wheat) has been pushing higher, the trade hasn’t exactly been easy for the bulls,” Brian Henry of ADM Investor Services said in a Nov. 13 commentary.
“Moves higher have generally been followed by sharp moves lower. That being said, the market has not broken the trend line. One day it will and the result is going to be a very sharp selloff.”
Analysts always look for the “harvest lows” to be reached during the fall.
Most years, government reports tend to find larger crops than initially forecasted as harvest progresses. Simultaneously, thousands of farmers dump crops into the elevator system directly from the combine.
The two factors tend to depress prices, but once the crop’s size is known and farmers have stopped delivering off the combine, prices tend to stop falling and slowly rise.
Analysts say about 90 percent of the U.S. soybean harvest is complete as is 60 to 70 percent of the corn crop, so the turning point in market focus is about to be reached.
“By the end of November, beginning of December, we start focusing away from production and start looking at demand,” said Joe Victor of Allendale, Inc. in McHenry, Illinois.
Corn futures seemed to hit lows in late September of about $3.20 per bu., then rose sharply above $4. Minneapolis hard red spring wheat futures bottomed in early October at about $5 per bu. and have since averaged about $5.50. Soybeans, the trendsetter for canola, surged out of the sub $9 area and climbed past $10 per bu. in early October.
But there is a chance the harvest lows have not been reached, Krueger said. The inflow of investment money has inflated crop prices, and they might not hold.
“We probably hit those lows six weeks ago, but we may be on the verge of tipping them over again,” Krueger said.
Another factor holding U.S. prices firm is the weakening of the U.S. dollar. The comparitively strong Canadian dollar has hurt Canadian farm gate prices.
Victor said bullish factors could develop for the winter market, but that is in its early stages. A big soybean crop is forecast in Brazil, but rust is beginning to appear and in some years that can limit yields and support prices.
