The clash between underlying bullish supply fundamentals for grain and oilseeds spars with various nations’ efforts to fight inflation either through higher interest rates or creative maneuvering to portray less demand. Heading into the end of the third quarter, the question continues, are commodity prices at a point price sell off due to fears of global recession or are prices about to rebound and extend higher due to the reality of still tight global grain and oilseed supplies?
The clash may continue for the short term. Inflation likely only comes down if commodity prices come down on their own or if interest rates go up to slow demand. The recent commentary from the Fed indicates that they will need to fight inflation with higher interest rates yet into 2023, which to me says that the Feds are going to try to continue to slow demand. Taming demand is one aspect of the inflation fight and a problem. The other obvious underlying problem is the reality of tight supplies of grain and oilseeds here in the United States and around the world.
Smaller global grain supplies cannot be hidden. The world hoped Mother Nature would offer a perfect growing season for the entire Northern Hemisphere this summer and that record grain production would result, but that did not occur. Global satellite images this summer alerted the agricultural industry that the global crops were in peril due to extreme heat. That fact kept corn and soybean prices supported this summer. Within weeks combines will roll and will unveil that U.S. and global grain supplies are still on the historically low side, with ending stocks on the cusp of again trending lower.
The U.S. did not have record grain production this summer due to intense heat. The same is true for the European Union. The crop in Ukraine is lower because of the war and less acres were planted. The crop in China suffered intense heat and drought in some regions, with other regions receiving too much rain. The bottom line—there is not a record crop from the Northern Hemisphere. The lower-than-expected supply story continues and cannot be concealed. With countries around the world not able to magically produce any more grain than what Mother Nature created this summer, you will likely now see many creative hoops that countries may jump through in attempt to curb demand. This will be their attempt to keep grain and oilseed prices from rallying higher.
With elections coming up in the U.S. and China, it seems likely that the fight to lower inflation will remain front and center. Looking abroad on Oct. 16, China’s leaders are proposed to meet in Beijing to hold their 20th National Congress. The National Congress is held every five years and determines the next group of leaders for the ruling party. This gathering has additional merit this year as China will also likely signal their upcoming economic plans and policies, and the world will watch to see if a date might be released on when China might ease its zero-COVID policy. The Chinese economy has been limping along due to rolling city-wide COVID lockdowns, which likely helps to slow COVID, but also slows their economy and also meets another likely objective—slowing commodity demand.
The clash may continue for the short term as trade watches to see if inflation and commodity prices can come down or will harvest in the Northern Hemisphere exemplify further the reality of the tight grain supply situation the world continues to face? Taming demand is one aspect of the problem, but the other exemplified underlying problem is the reality of tight supplies of grain and oilseeds here in the U.S. and around the world. That is the underlying problem. That problem does not get fixed quickly. The reality: We are back to the conversation that there are nine grain and oilseed commodities in the U.S. that once again have tight ending stocks and tight supplies, and in some instances, supplies are tighter than they were last year at this time.
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].
