Throughout the withering summer drought, Chicago's grain traders have kept one eye on the weather report and the other on the price of corn and soybeans. With every jump in the mercury, corn and bean prices have gone up, pushed by speculation that the brutal heat was drying up the Midwest's most important cash crops.
After another hot day in the Corn Belt Friday, corn prices jumped 2 cents a bushel to $3.66 and beans were up more than 12 cents to $9.40 a bushel.
Because of heavy purchases of corn and soybean futures contracts in anticipation of lower yields, corn prices have climbed 20 percent since June, beans are selling for 50 percent more than they were worth just three months ago and action in Chicago's grain pits has gotten as hot as a Kansas cornfield.
"We have become completely a weather market," said Robert Lekberg, senior grain analyst for Shearson/American Express.
On Monday the U.S. Department of Agriculture will put out its critical September Crop Production Report that will disclose whether the grain traders have correctly assessed the impact of the weather on the size of this year's crop.
Some analysts say there might be more corn and soybeans out there than anyone suspects, a development that could mean lower prices.
"Right now, our general consensus on the floor is that the report will show 4.31 billion bushels of corn, compared with the USDA's August estimate of 5.236 billion," said Jack Sandner, chief executive officer of Rufenacht, Bromagen and Hertz, commodity brokers, and former chairman of the Chicago Mercantile Exchange. "I think the USDA figure will be somewhat higher than our floor consensus."
"The market will run up a little but not much," Sandner predicted. "I don't see the price of a bushel of corn going up to more than $3.80 or $4.00."
Sandner said he believes the drought has not had a severe impact on all of the Midwest. "Most of the damage has been in Illinois, Indiana and Ohio, but not so much in the north," he continued. "Of course, there's no question that the damage has been severe."
As for soybeans, he said the consensus seems to be that the crop will be about 1.55 billion bushels, down sharply from the August USDA estimate of 1.843 billion. But Sandner's personal view is that this estimate is too low and that the USDA report will show a bigger crop.
"Beans haven't been damaged all that much, and export demand isn't as strong for beans as it is for corn or wheat," he asserted. "Russia and China can always buy beans in Argentina if they decide not to buy them here. So I can't see them going over $10 a bushel."
Susan Hackmann, vice president and grain analyst for A. G. Becker Paribas, agreed with Sandner's analysis, if not with his numbers.
She figures that the grain traders on the floor are expecting a corn harvest of 4.445 billion bushels--135 million bushels more than Sandner's estimate--and 55 million more than the prediction issued Thursday by Leslie Analytical Service, perhaps the most closely watched nongovernment crop estimate.
But Sandner and Hackmann both agree that Leslie's soybean estimate of 1.501 billion bushels is too low, by some 54 million bushels. Prices therefore have gone about as far as they will go this season, Hackmann said.
"I know there are those who think the market is going to bound up to new highs," she said. "I think I'm in the minority, but I think we're going to experience a series of failing rallies until the bulls give up the ghost.
"It's just like last Tuesday, when Sparks Commodities another crop research service came out with low harvest figures. The market rallied, but it didn't hold. I think higher prices are going to see a pickup in farmers' selling, and they've been absent for awhile. And commercial buyers have been coming in on dips in the market. But with higher prices, they're going to withdraw," she said.
Hackman is in the minority so far as Lekberg, senior grain analyst for Shearson/American Express, is concerned. He said the Leslie Report has had a profound effect on the market.
"The market environment has been shaped by Conrad Leslie, and it will be regarded as bullish," Lekberg said. "What he's done is removed the threat of getting hit by a two-by-four for going long.
"We have an awfully large rationing job ahead of us," he said of the process in which market forces encourage decreased usage of a commodity by raising its price. "We haven't yet completed the rationing required to make sure our supplies of corn and soybeans are going to last out the year. We need some higher prices."
Lekberg said that, "If the weather continues hot and dry, then the harvests will come closer to government figures. Once the damage is done, we might as well continue with the hot, dry weather, because, if it turns adverse, the rain then will play havoc with whatever beans and corn is being harvested out there."