Markets looking for balance

By Doug Tenney, Leist Mercantile

Balance. It is a quality all of us wish for and want to hold onto. Grain producers long for balance as it can provide more certainty for the bottom line. Grains were considerably out of balance on the June 30 USDA report day with two separate reports. First, the Quarterly Grain Stocks Report and second, the U.S. Acreage Report. Just hours and days ahead of those two reports, many had suggested the Quarterly Grain Stocks Report would be the more important of the two. Wrong. Instead, the acreage report provided an immediate blistering amount of fireworks and price implications. It has been long an assumption that USDA reports can often provide a surprise.

June 30 was a classic example of a stunner as balance was certainly missing for over two hours from the noon report release until trading ended at its normal 2:20 pm ET. Corn and soybeans closed different with December CBOT corn down 33 cents while November CBOT soybeans closed up 77 cents. It once again gave many Ohio producers the opportunity to price fall 2023 soybeans at a flat price of $13 or higher. Why the huge price movement for both crops? First, U.S. soybean acres were estimated at 83.5 million acres, an unheard 4 million acres below trader estimates, as well as a 4.5% decline from 2022. It was a bullish surprise for soybeans. Second, corn acres were 2.1 million acres above trader estimates, an increase of 5.5% from 2022. Is it any wonder the oft told tale for U.S. producers is that they “love to plant corn?” That appears quite apparent this year. Bottom line, it was a bearish surprise for corn. What about those grain stocks numbers? The numbers for U.S. quarterly grain stocks were a non-event for corn, soybeans, and wheat as all were below trader estimates.

Heading into the July Fourth, holiday wheat fields were still standing in central Ohio, a rare occurrence. At this writing, two or more rains are predicted for the first week of July. The consequences of frequent rains, temperatures in the mid or higher 80s, along with high humidity are three factors which often result in lower yields, lower quality, and increasing discounts. Often, discounts for poor quality can increase three to five fold or more in less than a week, a contributing factor as to why Ohio wheat acres have been decreasing for at least two decades. More and more Ohio farmers have reduced and even eliminated wheat from their cropping rotations due to the uncertainties. Balers used for straw are becoming relics, shortening the farm equipment list. While, I am not an agronomist or producer, it has become quite apparent that wheat yields can often be most unpredictable even as the combine enters the field.

Grains were under extreme pressure the last 10 days of June due to increasing changes for rains in much of the Midwest into July. Multiple weather models were calling for rain totals the first weekend of July into the first 10 days of July reaching 1.5 to 3 inches. Both the 6-10 and 10-14 day forecasts called for above normal rains for the Midwest.

Note that in recent months grain volumes at the CBOT have often been small. Trading activity by commercial grain facilities, fund managers, along with producers is less than in past years. In addition, the market is often lacking large sell orders above the market, or large buy orders below the market, resulting in choppy price action occurring two or more days each week. Price action for numerous days in recent months has often led to extreme price activity both higher and lower. Hence, daily price settlements are larger than those in past years for similar weather or demand events. A word of caution for all.

Weather will continue to be a dominant market feature into mid-August. Remember each day could feature up to three different weather forecasts. Eeny, meeny, miny, moe, which will help my crops grow?

Thought for day. “A well-developed sense of humor is the pole that that adds balance to your step as you walk the tight rope of life.” – William A. Ward.