April 21, 2022
Grain futures have had a tremendous price rally so far in 2022 and rightfully so. Poor weather in South America, the war in Ukraine and the fact that there are nine U.S. grain and oilseed commodities that have tight ending stock supplies have justified every inch of this rally thus far.
Yet short term fresh bullish news is likely to be hard to come by for a few weeks, therefore grain prices may just remain in a consolidation pattern until fresh news emerges. Here are a few items to keep in mind.
Holding pattern likely for prices
Nearby corn and soybean futures have been inching toward the all-time highs made in 2012 during the drought. These are impressive values, but without new, fresh bullish news, prices have little reason in the short term to take out those price highs.
The all-time high on the continuous front-month soybean futures chart was $17.94 3/4 on Sept. 4, 2012. On Feb. 24, 2022, the March 2022 soybean contract raced as high as $17.65 in response to the war in Ukraine. Also on that day, the May 2022 soybean futures contract reached $17.529-1/4. Therefore the $18.00 area for soybeans continues to be termed as major overhead resistance on charts.
When looking at corn futures, recently the May 2022 corn futures price rallied as high as $8.19-3/4, nearly 25 cents shy of the previous 2012 high. The continuous front-month corn futures chart traded up to $8.43 3/4 on Aug. 6, 2012.
Chicago wheat futures did not have an all-time price contract high set during the drought of 2012, but rather in 2008. However, the continuous front-month Chicago wheat futures chart already cruised past its previous all-time high ($13.34 1/2 from February 2008) when Russia invaded Ukraine.
It is the combination of tight U.S. grain carryout out, smaller than expected crops in South America, and the Ukraine war which has spurred prices this high so far. Yet for the moment, without a fresh round of new demand news or a new supply threat, prices will likely struggle to take out the 2012 highs for now.
Too early to talk about planting delays
Sorry to burst your bubble. I know it has been cold, snowy, rainy and miserable for spring weather. As a result, farmers are not able to get into the fields as early as hoped. But here is the reality – the crop is not yet late in getting planted.
The market will not really care about the slower planting pace unless it becomes the middle of May and the corn and soybean crop is less than half planted.
The world has seen the U.S. farmer get a third to nearly half of a crop planted in one weeks’ time. Therefore, there is little fear that the U.S. farmer will not be able to get the job done in a timely manner.
The value of the U.S. dollar is increasing
Traditionally, when the value of the U.S. dollar is lower, that makes it more attractive for other countries to import our commodities based on the currency exchange rate. What is interesting about this year is that the value of the U.S. dollar has been increasing since the start of 2022.
Often, when the value of the dollar increases, export sales begin to slow. However, we are not seeing a major reduction in export demand in spite of the gains in the Dollar. This is likely because of the supply threat from smaller crops in South America and Ukraine.
U.S. export sales have been steady and are primarily on pace to meet current USDA projections for corn, soybeans and wheat.
However, going forward, the dollar is now approaching some of the highest values it has seen over the past decade.
Russia's invasion of Ukraine has also propped up the dollar as investors run to safe-haven investments. The dollar is also supported as many investors continue to think that the U.S. will have a positive growth outlook in the short term, even with the Fed signaling a swift course of interest-rate increases to tame inflation.
The question is starting to be asked, however, if the value of the dollar continues to climb, at what point will end-users from other countries purchase less grain from the United States? Or would a potential global supply crunch cause global end-users to purchase grain regardless of the currency rate? Weekly export sales for grains will be watched closely over the coming weeks.
Next USDA WASDE report not until Thursday, May 12
The reality is that there is not much fresh fundamental news between now and the next USDA report in three weeks. Because of that, the market will have very slim odds of finding bullish enough news to justify prices to leap into new contract territory for corn and soybean futures.
The next USDA report, scheduled for May 12, 2022, will have the next update on the 2021/22 crop year, but also will show the first glimpse of the 2022/23 data sheet. It will be interesting to note how global demand and supplies will be accounted for with the ongoing war in Ukraine.
In the short term over the next three weeks, prices for grain futures could likely hold firm, trade sideways, or trade slightly lower in a corrective price action. This would be viewed as healthy for a bull market.
Going forward into summer, the pressure is on for the United States to have a record crop of nine grain and oilseed commodities this upcoming production season. Every weather forecast, satellite imagery, and USDA report will be scrutinized from now through summer. Traders will eye planting progress in Ukraine. Right now, trade is assuming that two-thirds of that Ukraine crop will be planted. If that ends up not being the case, then our U.S. grain futures would have a potential reason to push higher.
The world will continue to turn its attention to the U.S. growing season and other northern hemisphere crop areas to make sure that perfect growing conditions exist later this spring and summer, but for now, market news may be at a whisper, keeping prices in check.
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The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
About the Author(s)
senior market adviser, Total Farm Marketing by Stewart Peterson
Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.
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