Todd's Take

In Grains, Bearish Markets Are Staying Bearish

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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On Aug. 3, December corn closed at $4.93 1/2, 16% below its February price average. For those with 85% revenue protection, crop insurance is already at work protecting corn producers from further financial loss, assuming average yields or worse. (DTN ProphetX chart by Todd Hultman)

This week saw mostly lower prices across the grain sector, influenced by rain in the forecast, but there were also several other developments to keep up with.

This week's grain markets either learned or confirmed the following:

-- The row crop forecast for the next two weeks has a chance to help crops with timely rains.

-- Russia remains intent on attacking Ukraine's grain infrastructure, even when it's a stone's throw from NATO neighbor, Romania.

-- Since learning of this year's small U.S. soybean planting, China has been more motivated to get new-crop orders in early for U.S. soybeans.

-- The amount of soybean oil used to make biofuels hit a new record of 1.141 billion pounds in May, up 33% on the year.

-- Rain in the forecast can send soybean prices lower, but as long as demand for soy products remains strong, the crush incentive gets more appealing for soybean processors to keep buying soybeans.

-- Even with late rains, crops still have an uphill battle in many areas. USDA and the U.S. Drought Monitor said 23% of corn crops and 21% of soybean crops are dealing with D2 levels of drought or worse.

In outside markets, we are discovering there is still a strong case to be made for higher interest rates, not so much because Fitch downgraded the long-term currency rating for the U.S., but because Saudi Arabia remains intent on keeping world oil supplies tight. Three years and three months after COVID-19 sent crude oil prices to minus $40 a barrel, the U.S. remains vulnerable to higher fuel prices, having failed so far to restore domestic production to pre-COVID levels. Without adequate energy supplies, the Fed has little choice but to keep suppressing economic activity with higher interest rates. For commodity prices in general, and crop prices in particular, higher interest rates remain a bearish weight.

Especially for corn, storing grain will prove an expensive option in 2023-24. Because of USDA's 94.1-million-acre planting estimate, there is a good chance corn production will land near 15 billion bushels (bb) this fall, maybe even exceed the 2016 record of 15.15 bb. Off-farm storage will be expensive and anyone paying 7% or more on an operating loan won't be patient about holding on to corn for long. In this year's higher yielding areas, harvest prices are apt to encounter more pressure than usual and will likely not be kind to anyone needing to sell early. Fortunately for many producers, the protective aspects of crop insurance are already at work as December corn closed at $4.93 1/2 Thursday, 16% below the February price average of $5.91.

Wheat prices continue to be weighed down by lackluster demand and poor morale, unable to sustain a significant rally, even as Russia continues to attack Ukrainian ports and make life difficult for producers trying to move grain out of the country. The most recent Russian attack on the port of Izmail was one of three important ports on the Danube River being used to move grain by barge into Romania. If Russia succeeds in shutting down Ukraine's access to the Danube River, the remaining options by land are limited and expensive, a legitimate threat to the world's wheat supplies.

However, none of that mattered to wheat prices this week as September KC wheat fell four consecutive days, ending at $7.67 1/2 Thursday, Aug. 3, the lowest close in three months. On Wednesday, Russia once again showed its dominance among exporters, supplying Egypt with 300,000 metric tons (mt) of its 360,000 mt wheat purchase. It also didn't matter when the Economic Times reported India was considering buying 9 million metric tons (mmt) or 331 million bushels (mb) of wheat from Russia as a way of cooling rising prices at home, or when USDA's attache for Europe reduced its estimate of European wheat production in 2023 from 138.0 mmt to 134.6 mmt (4.95 bb). One of these days, wheat supplies will matter.

After four days of corn and soybean prices getting weighed down by a wetter forecast this week, the least bearish performance in the grain sector was in soy products. Thursday's closing price in September soybeans of $13.82 was down 51 cents or 3.6% from last Friday's close of $14.33. Over the same four days, September soybean meal was only down 1.5% and September soybean oil down 2.4%. The rain in this week's forecast that pushed soybean prices lower served to increase the already highly profitable spread between the value of crushed and uncrushed soybeans. With a September crush premium at $3.67 per bushel over the cost of soybeans, processors are printing money once again and demand for soybean oil has never been so good. On Monday, the U.S. Energy Department reported 1.141 billion pounds of soybean oil were used to make biofuels in May, a new record high and 33% more than the same month a year ago.

The way things are going, I'm not sure 2023 is going to compare well to any previous year. By now, we know crop conditions aren't as bad as 2012 and, after a rough start, those conditions aren't turning out as rosy as they did in 1992. This year has its own set of challenges and I, for one, am looking forward to the findings of this year's DTN Digital Yield Tour, starting Monday, Aug. 7.

To learn the latest on 2023 corn and soybean yield expectations, join us the week of Aug. 7-11 on the DTN Digital Yield Tour, Powered by Gro Intelligence. Each day we'll have updated yields for key states in our Top Stories news menu. For background information on the tour, see here:…


Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

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