Grain markets have strong fundamental support heading into summer

Grain futures have had a tremendous price rally so far in 2022 and rightfully so. Poor weather in South America, the war in Ukraine and the fact that there are nine United States grain and oilseed commodities with tight ending stock supplies has justified every inch of this rally.

Nearby corn and soybean futures have been inching toward the all-time highs, which were made in 2012, during a drought. These are impressive values, yet without new, fresh bullish news, prices have little reason in the short term to take out those 2012 price highs. Grain futures prices may ebb and flow over the coming weeks, yet overall remain fundamentally well supported at these loftier price values.

Near the 2012 price highs

The all-time high on the continuous front-month soybean futures chart was $17.94 3/4 a bushel on Sept. 4, 2012. On Feb. 24, 2022, of this year, the March 2022 soybean contract raced as high as $17.65 a bushel in response to the war in Ukraine. Also, on that day the May 2022 soybean futures contract reached $17.529-1/4. Therefore, the $18 a bushel threshold for soybeans continues to be termed as the major overhead resistance on charts.

When looking at corn futures, recently the May 2022 corn futures price rallied as high as $8.19-3/4 a bushel, which is nearly 25 cents shy of the previous 2012 high. The continuous front-month corn futures chart traded up to $8.43-3/4 a bushel on Aug. 6, 2012.

Chicago wheat futures did not have an all-time price contract high set during the drought of 2012, but rather in 2008. However, the continuous front-month Chicago wheat futures chart already cruised past its previous all-time high of $13.34 1/2 a bushel in February 2008.

Friendly fundamentals that are keeping grain futures prices supported

It is the combination of tight U.S. grain carryout out, smaller than expected crops in South America, and the Ukraine war, which has spurred prices this high so far, should keep prices supported as we head into summer.

Last fall I alerted you to the fact that there were nine U.S. grain and oilseed commodities, which had ending stock supplies substantially reduced from just two years prior. While it is normal to have cuts to ending stocks here and there throughout history, it is not normal to have nine commodities with tight ending stocks all at the same time.

Corn, soybeans, winter wheat, spring wheat, canola, cotton, barley, oats and sorghum all have tight ending stock supplies due to a combination of strong demand over the past two years and imperfect crop growing conditions last year.

When ending stocks get smaller, or are perceived to be getting smaller, commodity prices have a tendency to rally. With ending stocks tight for grains in the U.S., with little relief in sight, grain and oilseed commodity prices look to remain well supported for the time being.

Global ending stocks of corn and soybeans are also trending lower as we head into summer of 2022. The world needed abundant production of South American corn and soybean crops. We now know this was not the case, with South American soybean supplies nearly 15% lower than the potential it had, which justified the price spike higher for grains during late January and early February. This also resulted in global ending stocks of corn and soybeans being adjusted lower as well in subsequent U.S. Department of Agriculture reports.

Looking at the northern hemisphere as we head into summer, the world needs Europe, Canada, U.S., China and Russia to have large crops this summer during the growing season. However, cue the threat of a large portion of the Ukraine crops not getting planted, and the world is teetering on edge of dramatically lower ending stocks into 2023.

Therefore, there pressure is on for the U.S. to have a record crop of nine grain and oilseed commodities this upcoming production season. Every weather forecast, satellite imagery, and USDA report will be scrutinized from now through summer.

The next fundamental grain update from the USDA

The May USDA World Agriculture Supply and Demand report, scheduled for May 12, will have the next update on the 2021-22 crop year, but also will show the first glimpse of the 2022-23 data sheet. It will be interesting to note how global demand and supplies will be accounted for with the ongoing war in Ukraine. Right now, trade is assuming that two-thirds of that Ukraine crop will be planted, if that ends up not being the case, then the world will continue to turn its attention to the U.S. growing season, and other northern hemisphere crop areas to make sure that perfect growing conditions exist.

There is no room for error this year for crop production. None. Not here in the U.S. or around the world.

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].