It is difficult to explain what people in the grain sector witnessed last week. We have anticipated a grain stocks report and an acreage report from the US Department of Agriculture that could move the market and we have anticipated some specific possible changes.
Then on June 30, we saw the reports and received mixed reactions from traders. Corn acres and corn inventories were close to expectations. Corn acres are now estimated at 89.921 million, a slight increase from the average estimate of 89.961 million. June 1 grain stocks were reported at 4.346 billion, versus 4.43 guessed.
Soybean stocks were a ho-hummer. The shock came from acres of soybeans. The USDA planted soybean acres at 88.325 million acres, more than two million acres less than expected. You could say this is an unexpected extremely bullish surprise since the average trade estimate was 90.446 acres.
Councilors had warned of soybean cuts of at least 1.5 million acres, mainly due to planting problems in the northwest corn belt. It would seem that they are right. The price reaction, however, was hard to take.
We would expect prices to be considerably higher since our closing stocks should already be tight. This does not happen. The best that can be said is that the market was trading off the news and USDA reports were ignored.
The reports came out on June 30, and the trading on June 30 and July 1 was horrendous. Even with the reduction in soybean acres, soybeans lost 83 cents. November soybeans ended the week down 29 cents after the June 30 reversal. They were down 63 cents for the month. Corn prices fell 66 cents for the week, 92 cents for the month.
The best reason for the ugly markets is the general panic in the financial markets. There has been talk for a long time that the Fed would continue to raise interest rates. We now see that second quarter GDP is negative 2.1%.
This has caused analysts to backtrack and forecast lower interest rates to stave off a recession, which may already be upon us.
As I heard from an observer this morning, “Commodities don’t do well in a recession.” In fact, the Bloomberg Commodities Index lost 14 points in June, the biggest drop in 11 years.
Whatever the reason, fund traders fled the markets and sold corn and soybeans. Their trading volume was enough to overwhelm the markets, even with bullish news in the soybean report. It’s also hard to square the price drop with condition reports from across the country.
In many places, the crop was sown late and under poor conditions. Nothing good happens when crops are bogged down except that they are. Now we see if the harvests can catch up. In many cases it is replanted corn and beans, which are now way overdue.
I overheard a discussion with a farmer in North Dakota who doubts the harvest can be finished before his normal September 10 freeze date. It might not seem like a big deal, but remember that North Dakota is now our fourth corn state!
In addition to concerns about late and poorly planted crops, there are heat forecasts for the whole country. We’re getting just enough sporadic rain to sustain crops in some areas, and the hot weather will deplete soil moisture and stress crops just as they pollinate. Some have already started.
Current and forecasted conditions seem to indicate that we may see a price rebound. It would be nice if grain markets at least traded on things that affect them directly, and not on global geopolitics.
The continued fall in wheat prices is almost lost in the corn and bean wars. All three classes are down dramatically with Chicago Soft Red Winter Wheat down $1.10 for the week and $2.19 for the month.
Chicago wheat is now the cheapest in the world, but that hasn’t been reflected in trading so far. We anticipate an increase in export contracts, especially at these reduced prices, but this is not happening yet.
Also of crucial interest to farmers, the price of natural gas in Europe rose this week to over $40 per MMBtu. This is partly due to an explosion at a major LNG facility in Texas last month.
We’ve committed to sending gas to Europe to counter Russian sales, and that’s really hurting export volumes right now. The impact on the United States is that Europe is deprived of its ability to produce nitrogen fertilizer at these natural gas prices.
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