October 2, 2023
The last day of September traditionally is a nervous one for traders as they must decipher quarterly grain stocks data that often produces double-digit moves in corn and soybean prices. In addition to implications for demand, these reports, timed for release on the last day of the marketing years for both crops, sometimes include changes in production.
This year’s Sept. 1 Grain Stocks did some of both, sending futures deep into the red. That ended a short-covering rally in corn and dropped soybeans to their lowest level since futures soared after USDA slashed acreage on June 30, the day the last stocks data came out. Corn remains locked under $5, while soybeans closed at $12.75, more than $1.25 below recent highs.
Still, that setback likely was clouded by the other story of the day: the government shutdown that loomed over the weekend, because Sept. 30 also marks the end of the federal government fiscal year.
While Congress ultimately in the 11th hour agreed to keep funding agencies until Nov. 17, fears of another shutdown linger. If the ten previous closures over the past 40 years are a guide, financial markets and commodities could face added turmoil at a time when corn and soybean prices are already weak. And the longer any stalemate continues, the greater the risk its impact could be worse.
Corn stocks positive
The stocks data wasn’t an overwhelming disaster for grains, but results fell short of market expectations, leaving the path of least resistance lower at a time when money managers were already headed to the foxholes.
Sept. 1 stocks are also ending supplies for 2022 crop corn and soybeans, and USDA reported corn inventories of 1.361 billion bushels, down 91 million from the bottom line in the Sept. 12 World Agricultural Supply and Demand Estimates. In addition to a 15-million bushel reduction in 2022 crop production due to lower harvested acreage, the report suggests feed usage over the summer was better than expected. This, plus the cut to old crop supplies that carry over to 2023-2024, are positives for the outlook, a conclusion lost in Friday’s selling wake.
The soybean totals went the other way, though not by a huge amount. USDA said the 2022 crop was 6 million bushels less than previously reported, but raised carryout for the old marketing year by 18 million bushels, likely suggesting the hard-to-figure residual usage category was less than previously estimated.
USDA will update its official supply and demand forecasts with its next WASDE reports Oct. 12 and Nov. 9, thanks to the temporary budget agreement sealed over the weekend. Price forecasts for both crops could be at risk. The agency currently predicts cash corn will average $4.90 for the 2023 marketing year, which could be 50 cents or more too high. A lower production estimate next week would help the market, and both Vegetation Health Index maps and weekly Crop Progress ratings point towards possible reductions.
Crop ratings and the VHI also tip yield cuts for soybeans after recent declines. Otherwise, the 2023-crop forecast for average cash soybeans price of $12.90 could also be too high, though support could come from reports of dry conditions in parts of South America as the planting season gets underway there.
News from China will mostly be missing this week, though not due to a government morass. The country is taking a break for its annual “Golden Week” to celebrate National Day and the Mid-Autumn Festival, and markets won’t reopen until Oct. 9. Recent economic data out of China has at last been more encouraging, though it’s still too early for the Community Party to claim victory.
If a shutdown does occur after mid-November, history isn’t on the side of corn and soybeans, especially if the stalemate drags on. Other markets could also be at risk.
Markets of all stripes were already reeling in the days before the deadline for Congress to pass a budget approached, though many believed its impact on prices would be limited. Investors instead focused on fears of higher for longer interest rates, helping stocks flirt with bear market territory and lifting the dollar to new highs for the year. Supply worries drove crude oil to $95 a barrel, and few assets were unaffected by the chaos.
While previous shutdowns caused by lapses in spending authority offer ideas about what might happen from a November impasse, slam-dunk predictions are elusive. The chart above shows how the assets performed each time, along with the length of the shutdown.
The most recent event was also the longest, lasting 34 days in December 2018 and January 2019, and was in some ways typical: The stock market and commodities tanked, while fear sent investors into government debt securities and the dollar as safe-haven mattresses of choice. Stocks lost more than 10% of their value, and diesel prices slipped almost as much.
Hogs lost nearly 2%, though that was actually an anomaly. On average, hogs gained during the shutdowns, rising 8 times and falling just twice. That performance was the opposite of diesel, which lost the most on average – 2.4%.
The S&P was the next biggest loser on average, dropping 1.5%, going down 7 times while rising just three, reversing moves seen by the dollar. Corn and soybeans dropped an average of .8% and 1% respectively and matched the losing record of the stock market. The other assets, including cattle, had 6 up and 4 down records.
The seven-week reprieve approved by Congress and signed by the president could allow all sides to work out a more lasting compromise. But the deal made over the weekend forced House Speaker Kevin McCarthy to join forces with Democrats, a rare bipartisan move that triggered threats from some angered Republicans for his removal.
A vote on his speakership could come soon, complicating talks on spending and perhaps further damaging the U.S. with credit rating agencies.
It’s a story that isn’t over yet.
Knorr writes from Chicago, Ill. Email him at [email protected].
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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