For two weeks, grain analysts have struggled to explain why grain prices were declining on the Chicago Board of Trade.
Last week the decline became even worse, breaking recent historical and psychological price levels. Now, there are some reasons for the drops, but they still seem hard to justify.
Corn
Take corn, for example. The trend for 12 weeks was for prices to dip and then return to the same high. For May corn futures, that high was between $6.84 and $6.86 on four occasions.
The easy prediction was that corn could dip, but would return to $6.86 or so. Then, it didn’t.
We traded the cheapest price of May futures since July 25 on March 10, nearly eight months later. On that day, we touched $6.06 3/4, and have only rebounded to a close of $6.12 1/2 March 13.
That high of $6.86 seems a long way away, and we are all scratching our heads for a reason to get prices back up there.
Soybeans
Soybeans have been in a similar pattern, although they have remained relatively stronger. Four times this year, counting Dec. 30 as being in this year, we have traded highs at $15.43 to $15.60 in round numbers. The last was in late February.
Now, after the last two weeks of little news, we got as low as $14.77 3/4 Feb. 28. After a bounce to $15.38 1/4 March 6, we have declined again; we traded at $14.91 1/4 March 13.
For farmers, the real disappointment is that we did not get back to $7 corn and $16 bean futures. Those are big psychological numbers. Now, the reality is that we are approaching $6 corn and are below $15 soybeans.
Input prices
We still have historically good prices (beans in the teens), but we have had very high input prices. The one input that is encouraging right now is nitrogen.
We have seen incredible volatility in urea and DAP futures. All winter analysts have cautioned that the U.S. was exporting our cheap (because of natural gas prices being a fraction of those in the EU) nitrogen.
It was believed that we would need to see large imports by March in order to stave off shortages and higher prices. In fact, March is here and the nitrogen futures are still at their lows.
A year ago, in March 2022, DAP was trading versus the Gulf at roughly $950 per ton. Urea was at $1000. Now the DAP is $595 and the Urea is $316.50.
The effect on budgets is not what it could be because farmers followed through on professional advice and bought last winter, while prices kept falling.
The ugly reality is that the 10-year government projection is for $4 corn, $8 wheat and $9 soybeans. These seem cheap after the last couple of good years, but could be realistic if production remains strong. If inputs stay cheaper, they may be sustainable, but will not make farming easy.
Wheat
Wheat has not followed the other markets. While corn and soybeans kept bouncing back to the same highs, wheat futures have drifted lower, if for no discernible reason.
Now, wheat prices have been better for a few days, and the only reason being talked about is that the specs are taking profits on their short positions by buying them back.
Enthusiasm for prices depends on where you start on the chart. Chicago May futures finished last year as high as $8.08 1/4. After being lower, the futures contract touched $8.10 Feb. 14. Then came a general slide to $6.72 March 10.
May futures lost 20 cents March 9, but gained back $19 1/4 cents in the next three sessions. So, you could declare an upturn, but only if it continues. Three days does not a trend make.
Black Sea agreement
The biggest issue for wheat right now is whether the Black Sea Grain Corridor Agreement will be renewed. That has to happen this week.
Turkey has been the intermediary for Ukraine and Russia. Two weeks ago, we thought it would be canned. Last week, there was published opinion that the Russians would agree.
In the meantime, Ukraine has made an agreement to export by train though Poland. This will incur more risk and costs, but allow some exports that might otherwise be stopped.
The shipping right now is corn, but in a few more months the wheat will be available, and the wheat has more impact on world prices, even though Ukraine exports more corn than I had realized until this war popped up.
Banking disaster
Of course, the big issue hurting grain prices this week, especially bean prices, is the banking disaster looming in this country. We have seen failures of the second- and third-largest banks ever in this country.
That may develop into a huge economic problem, or it may go away with a whimper. Administration officials are filling the airways with commentary that there is nothing to see here, and we have it all fixed.
Contrary opinion has been openly expressed that, the more we are told there is nothing to worry about, the more we should worry.
The fact is that banking is based upon the confidence of depositors. All banking is done with the assumption that the short-term depositors will never all demand their money back at the same time.
That is now happening at some banks, exacerbated by higher interest that is putting banks that own government bonds at low interest rates in the red. They are penalized if they cash in 10-year bonds early, but need money to pay off depositors.
With higher interest, depositors have better investment opportunities than taking bank-rate interest. And, more than at any other time, depositors can demand money very efficiently through wire transfers and online banking.
