Grain futures have pushed dramatically higher in recent months thanks to a combination of tight United States ending stocks for nine grain and oilseed commodities, along with smaller than expected soybean production in South America, a dynamic wheat rally fueled by the Russian invasion of Ukraine, and inflation concerns.
Barring a black swan of demand destruction, grain and oilseed commodity prices are likely to hold firm at higher values for April. There are factors to monitor, however, which could have continued direct impact on prices in the coming weeks. Here is what you need to watch.
Planting progress in Ukraine
Ukraine is a top five global producer of corn, and the fourth largest global exporter of corn. Prior to the war, the U.S. Department of Agriculture was suggesting Ukraine would have the ability to produce 42 million metric tons of corn this year. While it is being generally agreed upon that Ukraine farmers will get corn in the ground this spring, the question remains how many acres will ultimately be planted, and will they have access to fertilizer and other important chemicals needed to maximize production. Due to the tighter global carryout levels of corn, the world really needs Ukraine to plant as much corn as possible.
Also in Ukraine, watch planting progress for sunflowers. Ukraine is the world’s largest producer of sunflowers and sunflower oil for export. If production is lost this growing season, that puts more demand on palm oil, canola oil and soybean oil. The U.S. and Canada currently have low ending stocks of both canola and soybeans. Both countries will likely plant more acres this spring, and again, perfect weather is then needed to produce an abundant crop.
Weather in Brazil
The second crop corn in Brazil, otherwise known as the Safrinha crop, is nearly finished being planted. As of the most recent USDA report, Brazil has the potential to grow a 114 million metric ton corn crop this year, and the Safrinha crop accounts for 70% of Brazil’s total corn production. There is high need from the world for Brazil to have a perfect crop to help offset tight global corn ending stocks levels, which may be getting even tighter depending on how much corn Ukraine can grow this season.
The world will be watching and trading every single weather forecast in Brazil for the coming month, and if there is any perception that its crop may be in peril, corn futures will respond by rallying higher.
U.S. grain exports
Trade is assuming the U.S. will pick up additional corn or wheat export business in the coming weeks due to the crisis in Ukraine. Weekly export sales need to be monitored. Any increase in exports would be perceived as new demand, and thus pull down ending stocks even further, keeping prices supported and ultimately putting more pressure on U.S. farmers to grow record crops this summer to help alleviate both tight U.S. and global supplies.
U.S. planting progress and weather
With nine grain and oilseed commodities with tight ending stocks in the U.S., all are competing for acres and the need for perfect weather. Will the crop get planting quickly this spring? Will there be weather issues along the way to contend with? Traders will be monitoring every aspect and the impact to prices could be volatile.
Due to the current supply and demand fundamentals for grain and oilseed commodities, the month of April will likely be one for the history books. At some point in the future, high prices will cure high prices, demand may falter, production may increase, ultimately leading to lower prices. But for now, the trend is up, and fundamentals remain friendly.
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].
