Friday, September 9, 2016

"Big US Grain Harvest Threaten Storage Space Squeeze" (and a change in the September/October prices forecast)

Last Chg
Corn 336-4-2-0
Soybeans 977-6+1-0
Wheat 401-0-5-0

From Agrimoney:
As farmers gear up for potentially record breaking corn and soybean harvests, concerns are circulating over just how they will store this massive crop.

Farmers have been holding on to corn, in particular, ever since last harvest, in hopes of higher prices.
And expectations are that they will do so again. 

"Farmers are still going to try to hold as much corn off the market at harvest as possible while letting soybeans go off the combine," said Tregg Cronin, at Halo Commodities this week.

Heavy carryover stocks
But the combination of heavy carryover stocks and a big harvest about to start rolling in means that space is at a premium. 

Based on the US Department of Agrimony numbers for carry-over grain closing stocks, plus estimates for the year's harvest, there will be 24.3bn bushels of corn, wheat, and soybeans to store.
US storage capacity, meanwhile, is estimated at 24.2bn bushels. 

So time is starting to run out for farmers, who need to clear the previous season's stocks before combines start running this month.... 
Back in March, starting with
March 8
ABN Amro Says Grain Prices Have Bottomed After Four Year Decline
We think ABN are early, there is just so much stuff around although we expect some late summer La Nina weather to give us a long trade.
And a week later when we laid out the 14-word investment thesis:
We're looking for a drift down into late summer, then a weather related boost....  
there were already reports of very large planting intentions.

That was followed two weeks later by the first of the important government reports:
USDA Corn Reports: This Ain't Rock and Roll, This Is Genocide 
2016 Prospective Plantings: Corn Acres Up 6% at 93.6 Million Acres
Wheat was pretty smoothly down:

While corn was a bit more terrifying for shorts:

But it worked out.
What probably won't work out is the "weather related boost." part.

From Bloomberg:

World May Miss La Nina’s Market-Rattling Effects as Odds Dim
  • Harder-to-predict patterns may hold sway over gas, soy markets
  • La Nina has caused floods in coal fields, drought in soy crops
La Nina, a weather phenomenon that could make parts of the U.S. colder, Brazil drier and Australia wetter, boosting prices for natural gas, soybeans and coal, probably won’t come around this year.
The U.S. Climate Prediction Center said Thursday it is dropping its La Nina watch and lowering the odds it will form to 35 to 45 percent from 75 percent in June, according to Michelle L’Heureux, a forecaster with the center in College Park, Maryland. Prospects for La Nina dimmed after models suggested the Pacific has reached its coolest phase for this cycle and will moderate through the rest of 2016. Still, no one is saying La Nina definitely won’t arrive.

“We’re dropping the La Nina watch, but the chance of a La Nina itself is definitely not zero,” L’Heureux said.

Characterized by cooling equatorial Pacific waters, La Ninas often deliver colder winters to the northern U.S., which can trigger higher gas prices by boosting demand for the power plant fuel. The event can also cause flooding in Australia’s coal belt or drought in Brazil’s soybean fields that can cut crop yields. If La Nina fails to arrive, predicting the weather in general becomes more difficult, according to L’Heureux.

It’s been among the hottest U.S. summers in 10 years, yet gas prices have failed to reach $3 per million British thermal units, said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. A mild winter will add to the market’s woes, he said. Gas last reached $3 in May 2015.

“It certainly isn’t going to help the bulls’ case,” Schork said in an interview. “It is sort of like the Sword of Damocles hanging over the gas bulls’ heads.”...MORE
So no hope for longs from the weatherman.