The dome of doom, the blocking high pressure ridge, that was forecasted to harm crops this week turned out to be very short-lived and punctuated with rain events. Most of the country is enjoying near ideal crop conditions as is reflected by the weekly crop ratings at near record high levels. Given the great conditions, there is little incentive for the market to price in weather risk premiums. As a result funds liquidated positions throughout the week as confidence grew in cooler weather ahead. Remember, what goes up must come down. The funds fueled this rally starting in late February with astonishing speed and volume, meaning it is just as likely the decline will be just as dramatic.
From a fundamental perspective, end-user demand for grain is more attractive at these lower prices. Now it becomes a tug-o-war between the end-user, who find these prices attractive, and the producer who cringes at these loss-inducing low prices. As the calendar ticks by it seems reasonable that logistics and space, more so than price, will be the ultimate decision maker when it comes to selling grain.
Where we go from here is as clear as mud. Short term weather forecasts will continue to induce volatility. Long term we have monthly USDA reports which are typically uneventful this late in the season, barring any large projected yield increase due to stellar crop conditions. Our next directional input is likely not going to come until combines start to roll and yield reports start to trickle in. Our fate lies soundly in yield and acreage, both figures that are unlikely to make see major adjustments until October or even January.
Given the variability of price movement, now is the time to have pricing orders in place with the grain department to avoid missing an opportunity.
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CHS – Rochester Grain Team
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