Grain futures are back to the conversation we had a year ago. There are currently nine grain and oilseed commodities in the United States with tight final stocks. Mother Nature was cruel this summer with the oppressive heat and drought. Not just the United States, but the entire Northern Hemisphere was unable to produce bin buster crops due to drought conditions.
Although current market fundamentals are favorable due to low supply, demand has slowly declined as global end users try to use only the bare minimum of what they need as prices are already high. Market prices for corn and soy have been trading in lackluster trading ranges for weeks. The market is waiting for new news to dictate a reason for a price hike or be on the lookout for a black swan that could negatively affect demand for grain and drive prices down. Let’s take a closer look at the corn, soy, and wheat fundamentals as we head into the final months of 2022 and prepare for 2023.
Closing stocks of US soybeans stand at 200 million bushels. According to the most recent report from the United States Department of Agriculture, the USDA has reduced yields to 49.8 bushels per acre. Demand was also optimized with the crush increased to 2.235 billion bushels, while export demand was reduced to 2.045 billion bushels. Looking at USDA’s November World Agricultural Demand and Supply Estimates report, traders will wonder if the USDA will make changes to the spreadsheet or wait another month before making any significant changes.
Traders are also watching the South American soybean crop being planted now. The world expects Brazil to produce a record harvest, and this is already priced in the market. Any signs of a below-record harvest or weather fears will support December and January prices.
Meanwhile, soybean prices continue to trade in modest trading ranges. But if you step back and look at the bigger picture, don’t doubt it, the soybean futures charts for November 2022, January 2023, March 2023, May 2023 and July 2023 are consolidating into a “banner flag” formation, and this The pennant’s particular flag suggests that there is an imminent price break of $ 2.50 a bushel on the way.
When we see these “pennant flags” on the charts, all we know is that a potential price breakout is likely to come and traders can estimate how large the price movement will be based on the flag’s price range. What we don’t know, however, is whether the price movement will be higher or lower, as the actual fundamentals of the market will ultimately determine it.
If the fundamentals justify a higher price, add $ 2.50 to $ 14.25 (the likely break point for the May 2023 soy futures chart) and you are looking at a higher price target in the price area of $ 16.75. ($ 17.00 would be extreme technical resistance overhead on the charts.) And also remember that it can take months for those final price targets to be realized.
Now, what if there is a negative black swan of demand destruction? Or what if South America was capable of producing a record harvest? This market could easily drop as much as $ 2.50. A price of $ 2.50 drops from $ 14.25 points to $ 11.75. Are you ready for this?
The corn harvest continues to end in the Midwest. We continue to hear from clients that returns were mostly average and below average. We will soon find out whether yields in the country’s top-producing regions will be able to offset the devastated yields in drought-stricken regions.
My impression is that in the next monthly USDA WASDE reports, the US corn yield will continue to be below the 171.9 bushels per acre of national yield listed now. However, I also feel we will likely see the USDA reduce export demand one step further in the next report. The net result would likely be that trailing stocks will continue to stay near the 1.1 billion bushels mark.
The US is the largest corn exporter in the world and many of our global customers who rely on US corn import recently seem to be buying their corn import needs on hand or in smaller quantities. Part of this could be due to the rise in global corn prices and the rise in the US dollar. However, could it be that these countries are waiting to know if American farmers could potentially eventually get a bigger harvest than expected? Are they also waiting and hoping that prices may drop slightly before their next round of corn has to be bought?
Please note that the USDA has reduced export demand for corn since the USDA’s WASDE report in May. In May 2022, the USDA set 2022-23 corn exports at 2.4 billion bushels versus the most recent number of exports of 2.15 billion bushels. Compared to previous years, export demand is falling due to rising prices.
In 2021-22, the United States exported 2.471 billion bushels of corn, and when China had its shopping spree in 2020-21, the United States exported a whopping 2.747 billion bushels of corn. Due to the higher prices, a higher US dollar, the USDA did a good job of showing that the demand for corn has been reduced. This is already listed on the market.
There is also already a price on the market due to the fact that Brazil has the potential to export greater quantities of corn due not only to a larger crop, but also to a recent agreement to sell corn to China. China’s maize imports for 2022-23 are pegged at 18 million tons. Chinese domestic demand continues to rise, currently set at 295 million tons, up from 291 million tons in 2021-22, and also from 285 million tons in 2020-21, mainly due to increased demand. of feed. Their herd of pigs is being rebuilt.
Also keep in mind that while China will now allow imports of Brazilian corn, China will still require Brazil to prove that the imported corn is not contaminated and meets some of the various production and inspection standards that China asks Brazilian producers to do. to join.
Don’t forget our other very important countries buying US corn. Did you know that Mexico has bought most of its US corn so far this year? China, Japan and Canada follow with Colombia, South Korea, the European Union, Taiwan, Honduras and Guatemala completing the top 10 importing nations.
My final point is that corn is currently priced fairly. The reduction in demand has been included in almost every single monthly USDA WASDE report since May (while the size of this US crop has also decreased). Frankly, I’m not sure how much further demand destruction could actually occur for corn, it would take a black swan event. Search your local financial markets and the basics to tell the story of local demand. Greater price variation in the futures market would come from South American production and US corn which will have to compete for acres planted in the spring.
Drought continues to plague the southern plains. The winter wheat crop is planted, but concern over potential production continues. Closing stocks of wheat in the United States continue to decline with the most recent number standing at 576 million bushels for all wheat.
Globally, there is concern about production with a smaller crop in Argentina and the quality of the Australian crop is in question due to recent heavy rains. Of course, the world continues to focus on the events in Ukraine and Russia. Global equities are also down
In the short term, grain prices may continue to trade in very small trading ranges. However, the sit and wait and see window will come to an end soon as the next few weeks will produce plenty of headlines to keep traders on the lookout for clues about this potential price breakout.
There is a major presidential election in Brazil in late October, the Fed meets in early November to likely raise interest rates, US elections in early November, there is a USDA report coming on November 9, the rail strike and of course keeping an eye on the grain corridor in Ukraine and finally on the climate in South America. While the outlook continues to be mostly upbeat and price friendly, be prepared for anything.
Editor’s Note: Naomi Blohm is a marketing consultant for Stewart-Marketing’s Total Farm Marketing and is a regular contributor to the Iowa PBS “Market to Market” series. She can be contacted at [email protected]