Crop Progress & Conditions (Per last Monday’s reports)
- The U.S. corn crop conditions are at 64% good/excellent versus 65% last week and 76% last year.
- The U.S. soybean crop conditions sit at 61% good/excellent versus 62% last week and 71% last year.
- The U.S. spring wheat crop conditions is now at 34% good/excellent versus 35% last week and 69% last year.
- The U.S. winter wheat harvest stands at 75% complete versus 67% last week and 75% last year.
The good/excellent corn condition rating now stands 12% below last year on this date. This week’s map of state by state ratings compared to last year on this same date shows continued deterioration across most of the Corn Belt. The biggest shift this week came in the key state of Iowa, with last week’s good/excellent rating sliding 6% lower than the previous week, and 10% lower than a year ago. Crop conditions are trending lower and this week’s oppressive heat across much of western Corn Belt may escalate that trend.
The Carryover Effect
When considering that the overall corn conditions are lagging last year’s numbers in the good/excellent category by 12%, along with the visual of the state by state map above, it is easy to expect a price positive, if not a full-out bull market. Instead, what we have throughout the first seven months of the calendar year is a 43 cent annual trading range for corn. As an additional point of interest, the extremes of this year’s range (low to high) was posted just 12 trading days apart back in late June and early July.
Here is another way to quantify the poor showing for corn in 2017 - the graph below illustrates the annual summer rally for new crop December corn from the late spring low to the ultimate summer high posted by the end of August. Throwing out the low and the high numbers for past 12 years, the olympic average for corn is an 86 cent rally. This is illustrated on the graph by the horizontal blue line. Basically, this year’s 43 cent rally is exactly half of the average over the past 13 years.
So, in the face of some obvious production issues, how in the world can corn be having one of its worst performances in over a decade? The big factor of course is the sizable 2.3 billion bushels of ending stocks coming off of last year’s record crop. That is a pile of excess supply that provides a nice buffer against new crop production issues. What doesn’t make much sense is the fact that the market was facing sizable ending stocks in both the previous years, 2015 and 2016, when much better summer rallies were posted. Why has deteriorating crop conditions not pushed corn to the $4.50 area that represents the high side of a multi-year trading range? What is different this year? Does this historical comparison indicate there is more of a corn rally on the horizon?
The only thing we can say with certainty is that it makes no difference what any one of us thinks, and the market is always right. At any given moment futures in Chicago are the conduit for every single opinion of price by traders around the globe. If more traders felt that today’s prices are too cheap, tomorrow’s prices will go higher. Conversely, if the majority feels prices are too high, lower values are on the horizon. Whether we agree or disagree, like or dislike, corn, or any market for that matter, is priced exactly where it is supposed to be at this moment in time.
The Value of a Structured Plan
Maybe our markets have more excitement in store. Maybe we have seen the tops and will soon begin the annual drift into harvest lows. No one knows of course. What we do know is that the past few months have been textbook examples of why marketing within a structured plan makes absolute sense. In each of the rallies dating back to late 2016, we have triggered additional sales for our RPM clients. Typical of marketing, many of those sales didn’t feel all that good the day they hit, but within a day or two, markets have posted surprising retreats and provided affirmation of having sales targets established and working at all times. If you are new to the structured marketing approach, this has been a great summer for seeing the logic of marketing the RPM way. If you are not currently an RPM client and are ready to look at a more structured marketing approach, give us 90 minutes of your time to see if this is a fit for you.
Newer clients to the program may be asking several questions. What if this had become a major bull market, or what if a big move higher lies ahead? How would you feel about your programs then? Those are easy questions to address. We would feel better than we do today, because we would have had a higher percentage of sales, and some at better prices, than we currently have sold. Let’s take the corn market for example: if we were sitting here with December corn trading north of $5.00 due to weather-related production losses, we would have run out of sales bullets back in the mid-$4.00 area. Many of our clients have been anticipating a bullish type of year and have layered in a percentage of “calls” to replace some sales. These would be adding some value to the earliest and worst sales. With this type of rally, we would be recognizing opportunity and making some sales for the 2018 crop. All in all, the future would look much brighter given this scenario versus where we sit today.
For the newer RPM clients, there are a few things you must wrap your mind around when marketing via a structured plan.
- There is no such thing as a perfect plan. Gauging one’s marketing results against what ultimately transpired throughout the year for prices is foolishness. You can never be happy with that comparison because you will have either sold too much or too little. Your gauge of success should be against the goals you set out to accomplish at the beginning of the year.
- Higher markets are always better…no matter how much you have sold or at what price. You always have more to sell, either the crop you are growing, or next year’s crop, if the opportunity presents itself. ALWAYS BE LOOKING FOR THE NEXT PLACE TO MAKE SALES AND NEVER REGRET THE ONES YOU HAVE ALEADY MADE!
- You have made decisions for action points in both higher and lower markets. Unless something major takes place and the structure of a market changes, your work is done. There is ABSOLUTELY NO REASON to wake up every day assessing current markets and what you may need to be doing. Once you fully buy into this marketing philosophy, you will find it to be very liberating. Your time, as well as your mental and emotional capacity are freed up for other important things in your life.
- If you think it is your job to worry about what happens with markets, you’re not fully engaged with a structured marketing approach. Markets are going to do what they do. Making logical decisions based on current market conditions is REALLY ALL WE CAN DO. We need to put our efforts into things we can affect and not waste time and energy on things that are out of our control.
The areas of concern continue to expand in the western Corn Belt. The strip across Iowa may have the trade’s attention as much as anything right now. The traders view Nebraska as irrigated and have likely already accepted that the Dakotas are in serious trouble. Understanding that the drought picture doesn’t tell the entire story for 2017, we would be wise to recognize that a big portion of the Corn Belt is still showing white on this map, and especially for corn, it is getting pretty late in the growing season for dry to become much of an issue in those areas.
July 18th 2017
There are two cattle reports out this afternoon that are issued too late for this week’s commentary. We will cover those in next Friday’s alert.