The month of July saw volatile price activity for grains. In early July grain prices sold off harshly prompted by wide spread rain on the radar, following a three-day holiday weekend. The price losses week wiped out the price gains from the bullish June 30 Quarterly Stocks report and Planted Acres report.
The month of August looks to bring continued volatility for prices. Trade is aware of tight old crop supplies and the need for a large United States grain crop.
Earlier this year, trade was focused on tight ending stocks for corn and soybeans. The soybean fundamentals had been the most bullish of the grain complex, which is why soybean prices lead the rally higher during the spring months. But now the storyline is changing. There are not just two grain commodities with friendly fundamentals, there are now five grain and oilseed commodities with alarmingly tight ending stocks and lower production numbers likely expected for this growing season.
Five: Oats, canola, spring wheat, corn and soybeans. I don’t ever remember a set up like this where five commodities are suddenly low on supplies for old crop and new crop, with whispers of lower global production as well.
Old crop ending stocks for soybeans are pegged at 135 million bushels, with new crop estimated at 155 million bushels.
All wheat ending stocks for the 2021-22 season are projected at 665 million bushels, the smallest number since 2013-14. Spring wheat ending stocks for 2020-21 are at 235 million bushels with the 2021-22 season projected even smaller at 119 million bushels.
Old crop corn ending stocks are marked at a low 1.082 billion bushels with new crop projected—at its likely largest potential for the 2021-22 marketing year—at 1.432 billion bushels, with trade expecting that number to be reduced in upcoming U.S. Department of Agriculture reports.
Ending stocks for oats for the 2021-22 marketing year are down to just 25 million bushels. All of these ending stocks numbers are considered historically small. And while the U.S. does not have an exceedingly large number of acres in canola production, the production in the U.S. is at risk due to drought in the northern Plains. In addition our friends to the north in Canada suggesting their crop may be the smallest in decades, which pushed canola futures to new highs during July.
Because supplies are so alarmingly small for five different commodities, record production is needed for this crop season. Unfortunately, this crop season in the U.S. did not start off on a perfect note with early planting, snow, frost and freeze, early drought and extreme high temperatures, and then too much rain in parts of the eastern Midwest. Because of the early production issues, and even with the recent rains, traders are now thinking a record national yield is not possible. Yet at the same time, it is too soon to suggest a drastically smaller crop. This crop size uncertainty will likely keep price trade action in a sideways consolidation pattern until more is known about U.S. yield.
Therefore, during August, expect more range trade for corn and soybean futures until more information is gathered regarding crop size. Expect trade to continue to trade every weather forecast; no rain and heat forecasts will send prices to the higher end of the range. Rain in the forecast will justify a reason to sell prices back down to the lower end of the trading ranges.
As of this writing, corn and soybean prices are currently in a holding pattern, trading near the middle of recent trading ranges. December corn futures have a current range where $6 a bushel is overhead resistance, and $5 a bushel is support. November soybeans have a range where $14.50 a bushel is resistance and $13 a bushel is support. Yes, both are wide trading ranges, but they are important to understand. The next bigger break out move will likely be measured by the price difference between those trading ranges—$1 for corn and $1.50 for soybeans.
What will it take to get prices to move out of these trading ranges? Here is what you need to know for the “line in the sand” when it comes to yield.
Regarding soybeans, the current ending stocks forecast for 2021-22 is 155 million bushels, with a stocks/usage ratio of 3.5%. The USDA is currently using a national yield projection of 50.8 per bushel average. If yield comes in the same as last year at 50.2 bushels per acre, ending stocks would project down to 103 million bushels, with a stocks/usage ratio of 2.3%. If yield is estimated to be less than 50 bushels per acre, that would be a reason to justify November futures trading through $14.50 resistance, with an upward potential price target of $16 futures.
When looking at corn, the USDA is currently using a record potential national yield of 179.5 bushels per acre. The previous record was 176.6. If we assume the previous record high yield of 176.6 bushels per acre, ending stocks would drop to 1.197 billion bushels with an 8.1% stocks/usage.
The line in the sand for corn is 175 bushels pre acre. If yield is perceived to be less than that, then that would justify price action for the December futures contract to trade above $6 a bushel, with $7a bushel corn as a potential higher target.
You can see that weather does still matter. There is not a quick fix for the tight ending stocks that are now showing up in five commodities. Think of the potential battle for acres that lies ahead for next spring. On the flip side of this, should timely rains occur, with moderate summer temperatures, traders will push prices lower due to a lack of bullish news, and the seasonal price slide into harvest has the potential to take over. This is truly a historic situation where both unpriced bushels and priced bushels need to be monitored. There is tremendous value in front of you to protect.
If you have questions, you can reach Naomi at [email protected] or find her on twitter @naomiblohm.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
