Close shot of a grain field

Whoever said grain markets were dull probably has never experienced a year like the one we’ve had. The past week has been no exception as the weather has been at the forefront of price moves across agricultural commodities this week.

The US Midwest, the heart of the corn and bean regions, has been dry after getting their crops in early.  The weight of an early plant, record acres, and a forecast of record production has given way to doubts that trend line yields can be achieved due to a prolonged dry spell, see Figure 1 per UK Agriculture and Horticulture Development Board.

Rain forecasts keep shifting with every run.  Current corn crop conditions are rated at 64% good to excellent, down 5% points on the week and well below the 73% recorded this time last year.  Much of the expected surplus in corn stocks this year was attributed to the US achieving above-trend line yields and marking a 388mmt production estimate, 10% higher than last year.  Rainfall models do turn wetter in mid-June, which would be a ‘just in time’ event.

The war in Ukraine took another decidedly nasty turn with the Russians (allegedly) blowing up a major hydroelectric dam.  The Nova Kakhova dam was breached during the week and sent the equivalent of 36 Sydney Harbours worth of water down the Dnipro River. The dam, other than supplying hydroelectricity, also provided water for human consumption and irrigation.  It is estimated that 500 thousand hectares of arable country has been severely degraded by the subsequent flooding and inundation.  The Dnipro River is a major transport corridor housing a number of relatively important port facilities.

Interestingly though, the market barely blinked.  It has possibly extended the war by stymying the Ukrainian counter-offensive which was due to start.  If the combination of the dam failure, military action picking up, 30% of Chinese crops under water, and poor US weather can’t spook the speculative traders to cover their trades, what will?

Next week

This weekend the USDA will release its June WASDE report.  The US weather will dictate price direction this week with rain in the forecast potentially undermining recent strength.

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Click on graph to expand, from UK AHDB

Click on graph to expand

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

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