What a summer! The U.S. ended the 2009/10 crop year in wheat (May 31) with stocks/use ratio of 48%, the highest in nearly 25 years. Wheat was everywhere – what could make market prices rise? Let’s start with a wet spring in Canada and a large number of prevented plantings, and follow up with a terrible drought in Russia. It happened fast. Minneapolis December wheat futures ended June close to $5.20 per bushel and by the first week of August, prices were flirting with the $8 level. The funds are back into commodities big time but I always wonder; Are they leading, or following?
The corn market responded slowly to the upheaval in wheat. In hindsight, the response was slower than one might expect, given that corn and wheat compete in feed markets (we think of wheat as a food grain but it is, in fact, second only to corn in feed usage in the world). Corn prices started a serious surge in late August, fueled by the emerging realization that this was not to be another record setting corn yield with the U.S. crop.
As September comes to a close, I suspect that both the wheat and corn markets have made their adjustments to new information. The bull market may continue, but it needs newer information to send it even higher. Bulls must be fed with an even newer angle on supply or demand. Today’s stocks report shows that surprises can and will occur.
What to do? Try developing pre-harvest marketing plans for 2011. My corn plan is posted here. Dec’11 corn futures are trading close to the $4.80 mark – a profitable sale for nearly any corn farmer. Ditto for Nov’11 soybeans at $10.80 per bushel (my 2011 soybean plan is here) and Sep’11 spring wheat futures at $7.25 per bushel (my 2011 spring wheat plan is here). I’m in – too early and too cheap, of course – but every sale will be a profitable sale.