Posted on July, 26, 2024 at 08:53 am
Barring any “black swans,” grain commodity prices may trade steady to lower during the month of August.
Grain futures edged lower in recent months for four reasons:
a good production start for crops growing in fields across the Midwest,
the perception of increasing ending stocks for U.S. grain supplies,
modest export demand for American grains, and
big export competition from South America.
However, there are factors to monitor in the coming weeks because they might have a direct impact on prices.
These five factors could result in a price rally – or further price demise. Here is what you need to watch.
Weather. The first important item to monitor for grains during the month of August is weather. With the late planting of corn in the Dakotas and Minnesota, corn pollination is occurring a couple weeks later than normal.
The outlook for heat and dry weather for portions of the western Midwest in early August may ultimately affect yield potential. Regarding wheat, the weather in the Black Sea region and Russia has been hot and dry, with final wheat yields in question.
Also, soybean yield is mainly determined during the month of August as it is the critical pod-filling window for production. Heading into August, the overall U.S. soybean crop is doing quite well based on weekly Crop Progress ratings. Should the weather become hot and dry, the market would likely find price support. As of this writing, soybean futures prices have very little weather premium.
The Aug. 12 USDA report. In some years, the August report has provided friendly news, which has given the markets a resounding “early harvest low.” In other years, the news from the August report sent prices lower for another month.
On the Aug. 12 report, many aspects of supply and demand could potentially be updated. On the supply side, trade will be watching for any signs of yield change and harvested acreage updates for corn and soybeans. On the demand side, traders will monitor export and crush demand for soybeans and ethanol and export demand for corn.
For soybeans, the current U.S. ending stocks for the 2024-25 crop year are pegged at 435 million bushels, which is a comfortable number. This is up from 345 million bushels for the 2023-24 crop year, and also up from 264 million bushels from the 2022-23 crop year.
For corn, the current U.S. ending stocks for the 2024-25 crop year are pegged at 2.097 billion bushels. Up from 1.877 billion bushels from the 2023-24 crop year, and 1.36 billion bushels in the 2022-23 crop year. Remember, the perception of large supplies has a tendency to weigh on prices.
Value of the U.S. dollar and interest rates. The Fed meets on July 30-31. Traders will be watching for clues or hints as to a possible interest rate cut.
The value of the U.S. dollar has been trading in a sideways fashion for six months, with a price breakout potentially resulting in the near future. Which direction largely depends on what the Feds say at their upcoming meeting. A lower U.S. dollar would be beneficial to help increase U.S. grain exports due to currency conversion rates.
The position of managed money fund traders. In late July, they had amassed a record net short position with well over 185,000 short contracts for soybeans and well over 350,000 short contracts for corn futures. Will they sit on those short positions? Will they extend their record short position (which would likely weigh on prices), or will they begin to exit those positions and buy them back, providing a potential price lift for grain futures prices?
Geo-politics. The uncertainty over the upcoming U.S. elections and the continuing wars between Russia and Ukraine and Israel and Palestine. Politics and trade with Mexico. Tensions with Iran and its nuclear program. And of course, the ever-evolving U.S. relations with China. Any flare up in any of these countries and relations could bring a surprise to the markets and ultimately grain prices.
Current trade perception is that supplies of American grain are sufficient, barring any weather surprises. Due to the current supply and demand fundamentals for grain and oilseed commodities, the month of August will likely be one to watch.
One on hand, if weather turns out wonderfully in the coming weeks, that may weigh on market prices until a “harvest low” is seen potentially in September or October. However, a stretch of hot and dry weather, a sudden derecho storm, or one wild geo-political event could create an unexpected rally for prices. Be ready for anything to unfold.
Source: Farm Progress