Summer price volatility for grain futures was extreme this year as drought conditions in Europe during early July zapped production potential for much of France and Germany’s corn and wheat crops.
With global demand for both corn and wheat strong, the notion of potentially smaller global corn and wheat production was enough to get fund traders to exit short futures positions. This then allowed for a price rally in early July.
The July rally continued for three weeks for corn, wheat and even soybean futures due to the drought in Europe, threats of a flash drought in the United States, and further geo-political strife in the Middle East and the Black Sea region.
However, cooler temperatures and better rain chances for most of the Midwest brought the rally to a halt in late July. Grain futures prices began to trade lower into month end. Traders are now left to ponder future price potential for the grain markets, for the month of August.
From a marketing perspective
The month of August may likely bring many questions regarding the potential size of the U.S. corn and soybean crop. Where will yield ultimately end up? Will the hybrid seeds show their might and allow the U.S. to produce sufficient crops despite the hot temperatures during the month of July?
According to the July U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates report, the USDA suggested that U.S. corn yield might be near trendline potential of 183 bushels per acre. If yield is 183 bushels per acre, then ending stocks are near 1.78 billion bushels. This is a comfortable number.
It would, however, set the stage for South America needing near perfect corn growing weather in January and February as global corn production may be starting to edge lower with a smaller European corn crop (due to their drought).
In the coming weeks, should corn yield be perceived to be less than 180 bushels per acre, then based on current demand, ending stocks would be closer to 1.5 billion bushels. This would likely be supportive for corn futures prices sooner than later.
And how about those soybeans? Currently the USDA has U.S. soybean yield earmarked at 53 bushels per acre, which would match the yield of last year’s crop.
If true, based on current demand, that would peg U.S. 26-27 ending stocks at 310 million bushels, which is down from 330 million last year. (This also operates under the assumption that China actually buys the 25 million metric tons of soybeans they said they would purchase and is already accounted for on the current WASDE balance sheet.) However, global supplies of soybean ending stocks are near record surplus, which may keep a significant price rally from occurring in the short term.
And lastly, on the Aug.12 USDA WASDE report, look at what the USDA has to say about global supplies of wheat. Known facts are that the U.S. wheat crop has trended smaller as has the
European crop. Traders need to watch how the USDA pegs wheat production for Canada, Australia, China and India.
Prepare yourself
The coming weeks could be benign for grain futures or potentially become volatile with social media arguing over satellite imagery and potential corn yield, along with constantly shifting weather forecasts. The Aug. 12 report will shed light on the yield conversation.
Until we have a better idea of where U.S. corn yield and production ultimately fall, corn may see a short-term technical correction lower into mid-August. While past performance is not indicative of future results, often December corn futures find a “harvest low” in mid to late August. The same holds true for November soybean futures and even December Chicago wheat futures.
Keep in mind the overly bearish sentiment for corn (and even wheat), has shifted to neutral because of the crop reduction in Europe due to their drought, and could become quite friendly in 2027 depending on how other countries’ corn and wheat crops fare and ultimately where U.S. corn and soybean yields materialize. Be ready for anything.
If you have questions, you can reach Naomi at [email protected] or find her on X (formerly twitter) @naomiblohm.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any of the three companies
