The Enid News and Eagle, Enid, OK

October 20, 2012

Grain market news has been mostly negative

By Rodney Jones, Extended Forecast
Enid News and Eagle

ENID, Okla. — Weather continues to present challenges to northwest Oklahoma agricultural producers.

The much-anticipated weather system that moved through the area last week failed to provide drought relief for the majority of north central and northwest Oklahoma. The area remains approximately 8 to 9 inches behind on precipitation for the calendar year, resulting in ongoing subsoil and — in many cases — topsoil moisture shortages.

In addition, an earlier-than-normal freeze event ended the development of many later planted summer crops that were already delayed in development due to the drought conditions. Area producers are making decisions regarding what to do with remaining summer crops, and completing wheat planting in some challenging conditions.

Most area producers are taking a cautious approach to plans for wheat pasture given the short moisture conditions and the slow progress of the developing wheat crop.  

While our focus has been on accomplishing the tasks at hand and making management decisions in the face of our local conditions, the grain markets continue to react to news from across the country and around the world. Grain markets in general continue to be driven by feed grain and oilseed fundamentals, not by wheat. Over the past few months the soybean market has led the entire grain market complex lower, as there has been little news from the other commodities to offset the predictable negative market news regarding soybeans.

The drought-induced yield losses in beans are proving to be much less severe than for the feed grains. Also, South America intends to try to produce a large soybean crop in response to market signals. Over the next several months, a primary market driver for all grain commodities will be South American weather. For feed grains, the market attention has shifted to the demand side. The early harvest is confirming the magnitude of the short crop.

Now, market concern is focusing on the fact end users have begun to balk at the high prices of the late summer, so decreased usage will at least partially offset the production shortfall. Overall, negative market news regarding corn from the demand side, and soybeans from the supply side has more than offset any positive grain market news over the past several weeks, resulting in a market slide.

As has been the case for quite a while, the wheat market is being pulled along for the ride in a sideways trading pattern. News regarding tightening world stocks, considerable wheat feeding in the plains and moisture concerns for new crop development (nearly 70 percent of U.S. winter wheat-producing region is under some level of drought designation) has not been significant or urgent enough to become a market driver.

So, are there any strong marketing decision signals being sent at this time? Not that I am seeing. I like to keep an eye on local basis for any strong incentives for cash selling. Basis levels for fall harvest crops (corn, soybeans and grain sorghum) are currently consistent with the longer-term averages for this time of year. The same is true for old crop wheat in storage.

In addition, forward contract bids for new crop wheat reflect basis levels consistent with the average of the past several years. Hindsight is always perfect. Those who marketed grain a few months ago are probably glad they did, and those who didn’t probably wish they had. However, prices are still strong from a historical perspective, so sales at current levels to meet cash flow needs or to stop carrying charges can certainly be justified.

Market volatility continues as large fund money moves in and out. Take advantage of upswings to market grain according to your plan. Over the next few months watch South American weather, weather through the winter wheat producing regions of the U.S. and overall world economic developments as potential market movers.

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Jones is Oklahoma Cooperative Extension Service area agricultural economics specialist.