Another USDA monthly supply and demand report is now behind us, and there was little fresh news offered. Corn and soybean prices continue to consolidate in well-established pennant flag trading ranges for the short term. With U.S. ending stocks still historically tight for the 2022/23 growing season, prices will likely hold firm for now.

What news will finally get corn and soybean prices to break out of these trading ranges (either higher or lower)? Grain traders will be focusing on these key factors in the coming weeks.

Black Sea grain corridor deadline

There's just over one week until the Black Sea grain deal expires on November 19. This deal was struck in July and has allowed grain to leave Ukraine ports without issue. Russia, Ukraine and the world will be looking to strike a deal to keep grain exports flowing from that region. Both sides are negotiating for large terms and port access. Will a deal be struck in time before the looming expiration date?

Energy prices

Crude oil prices are trading within the $80.00 to $90.00 price range, which is firm support when looking at monthly charts. Heating oil futures are still near recent high prices. Demand for fuel and crude oil has been steady amidst the backdrop of lower production and a firm U.S. economy.

Here in the United States, our current administration continues to produce less oil, and the combination of lower supplies and firm demand has kept crude oil prices at higher levels for all of 2022. Diesel fuel gains headlines of facing critical shortages in the United States while demand for fuel for trucks remains strong -- especially heading into the holiday season with online shopping and parcel delivery just beginning.

For the short term, crude oil prices will likely continue to consolidate in the $80 to $90 price range with headlines justifying a move higher or lower.

With energy prices higher and demand for energy firm, ethanol demand remains steady as well. In the latest weekly report, the U.S. Energy Information Administration said that “daily production of U.S. ethanol rose to 1.051 million barrels a day for the week ending November 4. This is up from 1.04 million barrels per day reported last week and marks the highest production has been since late June.” Current corn use for ethanol demand is pegged at a solid 5.275 billion bushels for the 2022/23 season.

In the coming weeks and months, energy prices will be affected by weekly energy reports and geo-political news. Oftentimes higher crude oil prices mean higher corn prices, and vice versa.

South American weather

Fundamentally speaking, grain prices heading into 2023 are on the verge of soaring higher or sliding lower with the price outlook heavily dependent on the upcoming growing season in South America. The market is already pricing in record corn and soybean production from Brazil.

Therefore, traders will scrutinize every weather forecast in the coming weeks. Any prolonged hot and dry spell for Brazil or Argentina could provide a $2.00 rally on soybean futures and a 50 to 75-cent rally on corn futures. However, if “perfect” weather unfolds for Brazil, the slippery slope of lower prices could unfold during the month of December.

Continued global economic jitters

Inflation talk continues on nearly every morning cable news show. In addition, the economies of the world are being scrutinized, and the value of the U.S. dollar continues to be monitored. The U.S. dollar has been trading at 20 year highs, yet is potentially showing signs of topping at these higher levels.

A lower U.S. dollar would be beneficial for American agriculture. A lower dollar makes it cheaper for other countries to import our grain based on currency exchange rates.

The Chinese economy remains of concern; one day China is coming out of the Covid-19 crisis, and the next day there is a new eruption of positive cases in China which puts fear into the market and sends commodity prices lower. Grain prices trade fear at times, and when there are new signs of Covid lockdowns within China, the assumption is that demand for food will be tempered in China with families stuck in apartments for weeks at a time.

Watch the money flow

When one looks at global factors supply and demand factors coupled with inflationary fears, the above looks like a hot mess. Recently the uncertainty of these factors had been keeping many commodity prices in a holding pattern for months as investors watched from the sidelines intrigued, but also perplexed as to where they would find the best return on investments. Is this all about to change?

 Fund traders have been holding a modest long corn position and long soybean position with futures contracts, but have been slow to add or subtract to positions overall, as they too, wait for the above factors to unfold to dictate if they should buy more or sell.

But let’s be honest, it makes sense for the funds to still be holding long positions in corn and soybeans futures, as ending stocks are tight, not only for corn and soybeans, but for nine grain and oilseed commodities. Soon we will be back to the conversation of a “competition for acres” this spring in the United States.

The potential price swings and market volatility ahead for commodities may only just beginning. Be ready for a wild ride as we finish 2022 and look forward to 2023.

Reach Naomi Blohm at 800-334-9779, on Twitter: @naomiblohm, and at [email protected].

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