GRAIN MARKETS
Global
updates
Volatility historically common in summer
By Paul Dubravec
Advance Trading
W
e are in the final stretch of
U.S. harvest in the major
grain belt states and by
now you’ve all heard how
great the crop is for both
corn and beans — both are expected to be
record crops this year if USDA’s latest report
is truly the final production numbers for this
crop year. The report had little in the way of
surprises, though it did solidify some of the
trade thoughts that USDA was possibly high
on corn and low on bean yields based on
preliminary yield reports that have been in
the trade throughout harvest. The updated
balance sheets below illustrate the changes
that were made in the October 12 report and
give a good summary of those changes for
corn, beans, sorghum and cotton. Rather
than dwell on what will be old news by the
time you read this, let’s review some of the
current fundamentals and the potential impact on markets going into the end of 2016
and the beginning of 2017.
Price volatility in December 2016 corn futures has increased over the past six months.
After grinding sideways to lower through the
winter, the contract posted a low of $3.64 on
April 1 and rallied throughout planting and
into mid-June to reach a peak of $4.49 on
June 17. On the heels of near ideal pollination weather, however, December plum-
12
The combination of a market rebound and
historically low implied volatility is presenting a
more attractive pricing opportunity for next year’s
crop than was available just a few weeks ago.
meted $1.34 ¼ over the summer to a low of
$3.14 ¾ on Aug. 31.
Since the beginning of September, the
market has staged a modest recovery that
some might term as unexpected. After all,
the October 13 USDA Supply/Demand
report confirmed a record U.S. national average corn yield of 173.4 bushels per acre for
the 2016 crop and record output of 15.057
billion bushels. On top of that, ending stocks
of 2.320 billion bushels for the 2016/17
marketing year represent an increase of 582
million bushels (33 percent) vs. last year.
Nevertheless, December corn on report
day rebounded to the highest point since
mid-July.
Glancing at the fundamentals does not
provide a clear cut answer as to why prices
are firming. A sluggish harvest pace had
been noted in such key states as Iowa, Minnesota and South Dakota, although a drier
short-term weather forecast for this area into
the second half of October should promote
more active progress. Although the pace of
U.S. corn export sales and shipments has
been historically strong, it’s worth noting
that the October 12 Supply/Demand report
projected a 630 mbu increase in foreign corn
exports for the 2016/17 crop year. This could
have dire implications for the U.S. program
the last half of the crop year.
If anything, this example serves as a valuable reminder of the unpredictable nature
of price. Final yields, demand trends and
weather patterns in South America could all
influence upcoming market direction. On a
day-to-day basis, however, markets can move
in a direction that might not be supported by
the longer-term supply and demand fundamentals.
Now that the report is behind us and
harvest is beginning to wind down, South
American planting and possible acreage
changes may inject fresh news and market
influence going into the remainder of this
year into next spring. U.S. weather concerns over harvest are already beginning to
shift to concerns over initial planting and