Sunset over a grain field

Last Friday night our time, the USDA released their July stocks and acreage report. It was the first look at the row crop sown area compared to the ‘expected’ sown area survey done in March. It contained quite the bombshell by increasing corn by 2 mil-lion acres and soybeans dropping by an incredible 4 million acres.

The market response was rapid.  Corn dropped 30c/bushel with wheat following suit.  Soybeans, however, rallied a whopping 74c/bushels and possibly would have seen more follow-through buying if it hadn’t been interrupted by the 4th of July public holiday.  It is hard to understand the size of this ‘miss’ by the USDA.  It has to be assumed that the good early seeding start incentivised the US farmer to go gangbusters on corn which has a slightly longer growing season at the expense of beans.

 

Much emphasis is placed on these row crops meeting ‘trend line’ yields.  The ‘trend line’ is a linear representation of yield over time allowing for improvements in agronomy and variety performance.  It is also used as a measure to determine if supply would meet demand expectations.   The trend line for corn, using the previous acreage estimate, was around 181 bushels/acre which was seen as a stretch given the poor June weather.  However, the increase in acres has seen the trend line yield reduced to 176 bushels/acre, far more in line with current conditions. 

 

Tonight, the USDA will release its yield and demand estimates.  Theoretically, it should not be a big market mover, but surprises don’t seem all that uncommon anymore.

 

The Black Sea grain corridor is back in the headlines.  Russia trotting out the same old line that the corridor is simply not workable, and they won’t be participating.  This time, however, there seems to be some more credibility to the threat.  The Black Sea route is effectively dead to Ukrainian exports as the Russian inspectors have failed to show up for work.  This has essentially prevented bulk vessels from loading or being discharged from the deep seaports.  Ukraine is still exporting grain via barges along the Danube and inland via rail, so the fact the grain initiative (corridor) may cease, should not be a major market mover.

 

Since the report and the initial fireworks, the market has gone back to trading the weather. Each day, the forecast is poured over and the market responds by climbing on reduced rains or falls on an improved outlook. It makes for a very volatile environment.

Next week

Keep an eye on Canada. While the weather patterns have turned decidedly wetter in the US, the Canadian Prairies have turned dry. Large swathes of Saskatchewan and Alberta are abnormally dry, and crops are starting to struggle. This may be more of an issue for canola prices but could dial up the heat on wheat if things don’t improve.

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Click on graph to expand

Click on graph to expand

Data sources: Reuters, USDA, Next Level Grain Marketing, Mecardo

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