Last month I wrote about the commodity-wide sell-off that could have potentially continued for the remainder of 2022 due to the aggressive interest rate hikes by the Federal Reserve in efforts to cool inflation.
By utilizing higher interest rates, the theory is that demand for raw commodities might be tempered, which in principle would further help bring commodity prices down or at least keep them from rallying.
That assumption and strategy works when supplies of commodities are plentiful and in recent weeks the world has found out that global grain and oilseed commodity supplies are again tight, and potentially getting tighter as the Northern Hemisphere did not produce bin buster crops this summer due to extreme heat and dryness. The hope was that the Northern Hemisphere would at least be able to produce an average, or slightly above average crop, to alleviate supply concerns, but that now looks to be far from reality.
The grain crop in Europe is smaller than a year ago levels, as is the crop in Ukraine, China and also the United States due to relentless heat and lack of rain this summer. While definitive numbers of the specific reductions are hard to obtain at this time, the upcoming Sept. 12 U.S. Department of Agriculture’s World Agricultural Supply Demand Estimates report should shed light on global production. And quite frankly, demand has not yet wavered.
It is still strong. Still strong demand and reduced supplies will likely further drag both U.S. ending stocks and global ending stocks for grain another notch lower on the upcoming September report. The anticipation of lower ending stocks and lower supplies will likely keep a sturdy price “low” in the market for now, for corn, soybeans and wheat.
It still will be a battle ahead.
There will be negative outside market influences flashing fear into traders, which will attempt to rein in grain and oilseed prices. But friends, the cat is out of the bag; the global crop continues to decline. Mother Nature has had the last say. If there is a legitimate large reduction of supply of grain in the world, then that likely trumps any negative outside market influence. It would take one heck of a demand destruction surprise to knock down global demand enough to counter effect the overall reduction of the global grain and oilseed supply.
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].
