June 13, 2021

Grain Markets Can’t Hold Their Gains

The grain complex started out with a strong gap higher last week on hot/dry weather forecasts but could not keep the upward momentum. Corn and soybeans stalled and traded sideways for the rest of the week while wheat began another leg down as rains across the Dakotas pressured the spring wheat market. The spring wheat market lost over 70 cents in the new crop as needed rains gave much of the spring wheat crop a big drink.

Weather forecasts are showing significant divergence depending on the models. The free and public GFS model has been the least reliable for weeks and was the lone model calling for rains in key dry areas, but it was the winner for the week. Summertime rains are difficult to forecast, especially the pop-up showers that emerged over the western Midwest over the weekend. As we start this week, grains are under heavy pressure as they see another round of weather-risk liquidation.

We had the supply/demand report last week as well, with USDA increasing old crop wheat exports by 20 million bushels to 985 million and raising feed use by 10 million to 100 million. End stocks for the marketing year that just ended were lowered by 20 million to 852 million bushels.

For new crop, USDA projected all wheat production at 1.898 billion bushels, up 26 million over last month and 72 million over last year. Yields were raised by .7 bushels/acre to 50.7. New crop feed use was bumped up another 10 million to 180 million. Carry-out was pegged at 770 million bushels, down 4 million from last month and down 82 million from last year. Like the row crops, stocks are getting tighter for US wheat.

World numbers showed new crop production at a record 794 MMT, up 19 MMT from last year. Russia is projected at a record 86 MMT, up 1 from last year; Ukraine is also looking at a record 29.5 MMT, up 4 from last year; Europe is pegged at 137.5 MMT, up 11 over last year. Generally good weather conditions are expected to keep those estimates intact, if not raised in future reports. World consumption is pegged at a record 791 MMT, and end stocks are estimated at 297 MMT, up 4 over last year. China is estimated to hold 48% of those end stocks at 142 MMT. There are some analysts who would highly contest the Chinese figures.

They would also contest the Chinese figures for end stocks of corn, where they supposedly hold a whopping 68% of the world’s carry-out stocks for the upcoming marketing year. World carry-out is pegged at 289 MMT while China reports 198 MMT for their carry-out. One must wonder why China is such an aggressive buyer of just about every grain product they can get their hands on if they hold that much of the world supply. It doesn’t add up.

For the next 6ish weeks, price action will be largely dominated by weather. With such tight stocks of the row crops here in the US and worldwide, any hint of production problems sends corn and beans sharply higher – and wheat will follow.

Obviously, the opposite is true if unexpected rains show up or if the forecasts start giving a more favorable outlook. For the very near term, we appear to be getting enough rain in the forecasts for traders to peel off some weather risk. That said, there is a lot of growing season left and volatility will remain high. The critical pollination stage is still about a month away and that is when price action could get really volatile.

Winter wheat harvest will march along, dodging rains and hail. As long as corn and beans remain under pressure or stall out, wheat has little reason to rally as the harvest moves toward record yield expectations in Kansas. The rains that fell across the northern plains are not a drought buster but will likely carry the crop for a couple weeks even if no other rains fall.

The end of June will bring another highly anticipated set of reports, the final plantings estimate and the quarterly stocks. Corn plantings are expected to be notably higher than the March report. The question is: where did those acres come from? Soybeans can’t afford to lose any acres, nor can most other crops. The expected epic battle for acres this spring didn’t disappoint.

Louise Gartner,

Spectrum Commodities

Listen to my podcast on wheat and cattle:  http://spectrumcommodities.podbean.com/

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