Crop prices should be bouncing high right now, not dribbling along the floor.
But little about this year’s agricultural markets fits the usual profile, says DTN senior analyst Darin Newsom.
“There’s just no one to step in and push this market higher, which we normally see at this time of year,” said Newsom.
In most years crop prices suffer “harvest lows” when both futures prices and the cash market hit their low points for the year. It’s a phenomenon caused by American farmers wanting to move large amounts of crop directly from the combine into the elevator system, and by farmers and commercial users locking down prices in the futures markets.
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But once that harvest pressure is off, there’s usually a sustained rebound.
“Usually prices have now passed their lows. People have stopped selling in the cash market. This tends to spark a rally. You see the spreads firm a bit. All these things tend to lift prices. But not this year,” said Newsom.
Two factors help explain why crop prices are not recovering from the mid-summer slide: a late U.S. harvest and turmoil in world markets.
The commercial pressure from farmers harvesting grain and driving it to the elevator is still occurring, so there’s little reason for the market to bid up prices.
“With this crop lagging, from planting season on, we’ve pushed the possible harvest lows weeks further,” said Newsom.
There’s little pressure from investment money looking to jump on a possible commodity bull market like there was last year.
“Right now, with everything seeming on the brink of collapse, money has been coming out of commodities since July,” said Newsom.
“We saw it pick up pace in October, then as we came to the end of that month we saw it hit a lull. Now what we’re seeing is it pick up again.”
The outlook for the winter marketing season is not great, because demand is falling. A number of ethanol plants are in financial trouble and feedlots have fewer cattle to feed than expected.
“Total demand for corn is falling off,” said Newsom.
Corn is the foundation of the grain market, with other grains tending to follow its lead.
Speculative money drove commodity prices high into early July, then helped push them lower after July.
Newsom thinks most of the speculative money is now out of the market and it won’t come back. Too much has been lost in the past few months across all markets.
“I don’t think we’ll see the same type of money flow into this market as we have over the past three to five years. Maybe the great bull market has run its course. That doesn’t mean we won’t see some money come flowing back in, though,” he said.
Whether today’s market prices, which have been staying within a fairly tight trading range for about two weeks, are making a harvest low will only be known in a few months time.
But Newsom said the concept of harvest price lows might not apply this year because there are too many other factors.
“Seasonality can be a guide, but when we’re going down our checklist of influences one, two, three, four, five and six, seasonality only comes in No. 3 or 4,” he said.
