Todd's Take 06/24 08:21
Crop Prices Have Short Week of Big Bearish Changes
For grain prices, it may only be a four-day week, but in this new era of
inflation, the first three days have been surprisingly bearish.
DTN Lead Analyst
For a week shortened by the celebration of Juneteenth, it is astonishing how
stubbornly bullish grain prices unraveled so quickly. On Thursday's close (June
23), after just three days of trading this week, December corn was down 75 1/2
cents at $6.55 1/2 and November soybeans were down $1.22 at $14.15 1/2, both
below their 100-day averages for the first time this year.
July soybean oil has fallen over 6 cents since Friday, posting its lowest
close Thursday in four months. Bean oil's two major influences, palm oil and
crude oil, were both lower this week, but it was palm oil that drew extra
attention with a 13% drop.
U.S. wheat prices also participated in this week's big sell-off. September
KC wheat fell over a dollar a bushel and closed Thursday at $10.10 3/4, the
lowest finish in over three months and below the 100-day average for the first
time since before Russia invaded Ukraine.
Even more baffling, the bearish changes happened after a weekend when much
of the Midwest experienced uncomfortably high temperatures, there is little
rain in the U.S. forecast, the corn basis is uncommonly strong and old-crop
futures spreads look extremely bullish for corn and soybeans. We also can't
ignore that Russia continued its relentless attacks against Ukraine, including
reports of damage this week from missiles at two grain terminals in the
southern port of Mykolaiv.
I can't justify this week's lower prices, but if I were forced to explain, I
would say bearish market factors included a broad coverage of rain in the
forecast across the Canadian Prairies and a forecast of milder U.S.
temperatures for the remainder of June.
Rain across Canada will be especially helpful to the western Prairies where
conditions have been dangerously dry much of this year, but moisture in the
eastern half is already plentiful and not so welcome. Moderate temperatures
across the Midwestern U.S. will certainly be helpful to early row crop
conditions that are already off to a good start. I would remind readers,
however, that DTN's forecast for the months of July, August and September
continues to expect above-normal temperatures and below-normal precipitation
for most of the central U.S.
As DTN meteorologist John Baranick pointed out in Wednesday's Ag Weather
06/22/heat-ridge-shifting-west-offering), "a hot and dry July is still being
forecast for most of the country." "The cooler forecast for the end of June
does not mean July or August will be cooler."
The most surprising change in June has been the sudden 22% drop in the price
of September palm oil, the world's largest source of vegetable oil. In USDA's
June World Markets and Trade report, USDA estimated world palm oil exports
would be up 11% in 2022-23 and world ending stocks would be up 9%. This month,
prices took USDA's view seriously.
Technically speaking, the two-year bull market in palm oil has been broken
and, for the first time since the emergence of the global pandemic, a major
food market appears to be returning to more normal conditions -- something we
could also probably have said about crude oil, if not for Russia's war. Even
though soybean and canola supplies remain tight, this week's bearish influence
from palm oil also took those two prices lower and quickly drained money out of
the accounts of bullish speculators.
However, it is difficult to get too bearish on soybean oil. With diesel
prices near record highs, the U.S. market desperately needs soybean oil to
extend limited diesel supplies.
Wednesday, June 22, President Joe Biden called on Congress to suspend
federal taxes on gasoline and diesel for three months in an effort to give
consumers relief from record prices of both fuels. Crude oil prices dropped a
few dollars this week; not because of the President's proposal, but because
there is a growing concern that the world's major economies are about to slow,
prompted by hawkish anti-inflationary policies and by COVID-19 restrictions in
Federal Reserve Chairman Jerome Powell got a lot of attention Wednesday when
he told the Senate Banking Committee that a recession is a possibility and, of
course, that fueled bearish worries of speculators that have been heavily net
long in corn, soybeans and wheat most of this year. More fears were stoked
after Reuters reported some G7 members will propose a temporary waiver of
biofuel mandates at Sunday's G7 meeting. The level of support for such a
proposal is unclear and does not seem likely in the U.S.
The U.S. is not alone in facing a risk of recession. In Germany, Economic
Minister Robert Habeck labeled Russia's decision to cut off gas supplies an
economic attack, prompting the government to move ahead on an emergency energy
plan, described as a close step to energy rationing.
For those trying to manage risk on the farm in 2022, the decisions became
more difficult this week. There is not much stress when bullish price behavior
coincides with bullish fundamental market factors, but when the sleeping beast
of noncommercial liquidation wakes up the way it did this week, confidence in
bullish fundamental views is strained.
Historically speaking, the prices of corn, soybeans and wheat are still
high. Bullish risks of hot and dry summer months later this year are still in
play and Ukraine's prospects for exporting significant amounts of grain in 2022
are as bleak as ever.
Here in the U.S., USDA estimates the winter wheat harvest will be 7% less
than a year ago and spring wheat conditions are the fourth lowest for this time
of year in two decades. Russia is expecting a big wheat crop in 2022, and even
though there is uncertainty ahead, it is difficult to imagine U.S. wheat
supplies not being tight again next winter.
As the Wall Street Journal described Wednesday's attacks on grain terminals
in Ukraine, the article also mentioned Russia has been conducting simulated
attacks against Estonia, a NATO member (see
950 by Alistair MacDonald, Bojan Pancevski and Drew Hinshaw).
It was not surprising to hear Estonia's Prime Minister Kaja Kallas has been
one of Russian President Vladimir Putin's fiercest critics and is a leader in
the effort to unite Europeans against Russia. According to reporters at AP,
Kallas said some countries "were very skeptical two months ago," but now there
are "different signals coming from different member states ... that they are on
board ..." "So far," Kallas said, "it has been a negative surprise to Putin
that we are still united" (see
For grain prices and energies, Russia's Putin remains a dangerous wildcard,
threatening this year's supplies and exacerbating economic pain in the West.
Even if grain traders choose to ignore the Putin risk this week, the problem is
not going away.
For producers looking at the entire growing season and not just this week's
selling, there is still a lot to learn about the year ahead. This year's
higher-than-normal levels of crop insurance protection remain an important
safety net. If someone could tell us how either the weather or the situation
with Russia is going to turn out, we could all breathe a lot easier.
Comments above are for educational purposes only and are not meant as
specific trade recommendations. The buying and selling of grain or grain
futures or options involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
Follow him on Twitter @ToddHultman1
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