Drought 2012: Hot Weather and Hot Grain Markets

It's only August, but talk early harvest of corn and beans is under way. Louisiana is 11 percent harvested on the beans, Mississippi is 6 percent done.

USDA issued the first harvest report, saying that we were 4 percent done Sunday night.

The early harvest might be contributing to the old-crop/new crop spreads. Early in the rally, the nearby contracts led the markets. Recently, it has been the December corn contract.

With early harvest taking the pressure off the idea of running out of corn, we can now just worry about the new crop. At some point we will wonder if the carryout is still too high because we used some of the current crop up before the current crop year officially started.

The highs in corn prices have has a lot to do with ideas of limiting demand. Not much talked about by farmers, but noticed by the trade is the unusual importing of corn taking place right now.

Southeastern feeders have banded together to get Brazilian corn into Norfolk. Nine cargoes were booked more than a month ago. This month, the talk was of Brazilian corn coming into California for the dairy industry concentrated there, away from our mainstream supply.

It's sad to think that ocean freight from Brazil can be cheaper than rail freight from the Midwest.

The government has stopped just posturing about the ethanol mandate. The EPA has now officially opened a 30-day period for comment on whether the mandate should be waived. This would mean that refiners would not be required to put 10 percent ethanol in their gasoline blends. The consensus is that if the mandate is suspended, corn prices would drop as usage in gas would drop. 

If the mandate changes and the refiners go to less ethanol, the result would be the total stop to the rally and a retracement, looking for a demand-driven price.

Some time in the future we will look at the charts and have reasons why prices changed at a certain date. What we know is that the prices cannot just go up.