The “limbo rock” market (how low can we go) of the summer months has given way to a recovery in prices the last month. The common theme of many market letters this week is that we may have reached the bottom for corn and soybean prices.
This represents a class of analysts who are not really sticking their necks out now that the corn and soybean charts have ticked up for more than a month. We are well into our early harvest now and have some hope that the harvest lows actually came a month before harvest.
The U.S. Department of Agriculture Grain Stocks Report released Sept. 27 helped the slightly bullish position that seems to be forming. Grain stocks is a measure of what grain is actually still left in the country at a certain date.
USDA came up with a corn stocks that was lower than the market expected, so a bullish reaction raised December futures by 6 3/4 cents. The soybeans were actually down 8 3/4 cents on what was termed a slightly bullish number, so there is still a little confusion and still an attitude among traders that soybeans may be too high. Probably the real reason for lower soybeans was a harvest push that created hedging pressure on prices.
Corn prices are still fighting the reality that the USDA Crop Production Report from Sept. 12 called for a corn yield of 183.6 bpa, a new record. That will be especially hard to overcome if we have a fast harvest to go with our early one.
A fast harvest will depress prices, but some ag writers are floating the idea that corn prices will firm up after harvest. The reason given is that farmers will store all they can at low prices and may be strong holders as they hope for a rally out of less-than-production-cost corn.
Around the globe
Foreign production problems highlight any reason for good prices. For example, the record drought in Central and Northern Brazil may significantly affect production. It can be argued that September weather is not a factor, but we are now into October and the Brazilians should be planting.
In fact, they are waiting for regular rain patterns before they plant. This is hard for an Ashtabula County native to get his head around, but it is normal. In northeast Ohio, we hope for dry weather to get the planting done. In Brazil, they wait for regular rains to convince them that it is safe to plant. The dry weather there has been accompanied by 100-degree temperatures.
Traders are also concerned about the “EUDR” about to pass in Europe. If I understand this, it would put upon the South American farmers the responsibility to prove that grain exported to EU countries has not been grown on deforested acres.
This is a whole new twist on the green movement, and it presents a lot of problems in not only creating “identity preserved” shipments of grain, but of how to prove the land has not been deforested.
I wonder what constitutes “deforestation.” Is taking a brush rake to cerrado land (covered with a certain brush) now “deforestation,” or are we just talking about rain forests? What is the time period for clearing land — current, or any land cleared in the past 50 years?
Then, there is the concern that the Ukraine war could get uglier. Ukraine wants to use long-range missiles to attack sites in Russia. The next escalation threatened by Russia is nuclear weapons. The Ukrainians are already fearful of attacks on their nuclear electric energy production plants. This is a variation of war we can call the limbo war, keeping with the theme of this piece. How low can we go in the war to conquer Ukraine?
It amazes me that the Ukrainian farmers are keeping up production in the midst of war. I am seeing forecasts that the volume of ag exports from Ukraine may decline this year from 60 MMT to below 55. They are major exporters of soybeans and corn, so this matters to our prices. The Europeans are also seeing a drop in expected production of corn this year, all because of hot weather.
Domestic news
The most interesting domestic news affecting agriculture may be the move to legislate year-round gasoline with 15% ethanol instead of 10%.
Currently, the government issues waivers to allow production in the summer. New legislation, if passed, would dramatically increase the amount of 15% that is sold. I suspect this is partly because the seasonal sale of 15% does not work very well.
Does the retailer put in additional tanks and pumps for another product? Does he switch his 10% pumps to 15% and then back at the end of summer? Since 97% of vehicles on the road are now made to work with the 15% fuel, a permanent switch to the higher-ethanol fuel might make a huge increase in ethanol use in gasoline.
A look at prices shows that corn and soybeans made two-month price highs recently. Prices were higher four out of five weeks. Long-term charts show that we had a huge drop in June. Corn went from a high of $7.59 1/4 December futures May 28, to the $5.79 of June 26. By another month, we saw $5.22. The rebound is now to $5.86 1/2 as this was written the morning of Oct. 1.
The soybean crash took a little longer. We had $12.30 1/2 May 7. The low was on Aug. 16 at $9.55. We have bounced now to $10.69 1/2 here the morning of Oct. 1.
The Chicago wheat futures December high was at $7.59 1/4 the end of May. By the end of August, it was $5.22, and we are now trading at $5.98 3/4.
