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Much of the current market volatility is trying to figure out when Ukraine’s grain will become available.

Brian Splitt, Technical analyst

June 10, 2022

4 Min Read
Ukraine flag during storm

Wrapping up the second week of June, strength in old crop July contracts relative to the rest of the futures curve was the theme for both corn and soybeans alike. At 59.75 cents July corn premium to December corn and $2.0175 July soybeans premium to November soybeans, these spreads both reached their highest respective levels since May 10 and March 9. Strength in these spreads has been driven by cash market demand for old crop as we approach First Notice Day for July contracts at month’s end.

The strength in old crop demand has not been from exports as the USDA saw fit to reduce corn export demand on the June WASDE report by 50 million bushels. Carryout increased by 45mb due to a 5mb increase to the food/seed/industrial (FSI) category. With the 45mb increase to old crop, new crop carryout increased by 40mb with another 5mb increase to FSI.

These adjustments have a minor impact when we realize a half bushel per acre adjustment lower to 2022 corn yield will take those bushels right off the balance sheet.

Report surprise

Perhaps the “surprise” of the report was an increase to world corn production of just over 5 million metric tonnes which came from an increase to Ukraine’s production. On the surface, this looks like a bearish adjustment. The thing is, Ukraine typically does not carry over much corn year-to-year. While Ukraine’s average carryout between 2012 and 2020 was 1.2MMT, they are now projected at 6.77 and 12.07MMT respectively for this year and next year. This would suggest the world is down 10-11MMT in available supply until that grain is available on the world market. Much of the volatility since late February has been trying to figure out exactly when that might be.

What could become the biggest driver to world balance sheets in the next 60-90 days besides US production is whether an export program comes to fruition for Ukraine. Storage and lack of bids from exporters for new crop grains will become an increasingly important nuance in the next six weeks. If fighting continues and ports remain closed, the Ukrainian producer could face a cash flow problem that would limit planting of their winter wheat in August through September. The international community has reason to be impressed with the amount Ukrainian farmers planted during the invasion, but a different outcome is possible for their expected 2023 production. This is something that, should it come to fruition, could impact next spring’s planting depending on the evolution of the conflict in the months to come.

Soybeans had a “buy the rumor, sell the fact” week with July futures trading with about a dime of record spot futures values the day before the report, but finishing 23.5 cents lower after the report release. In September of 2012, spot futures reached $17.9475 with the July contract this week trading $17.84 on the high. USDA adjusted both the Argentine and Brazilian soybean crops higher by a combined 2.5MMT which likely added to weekend profit taking after trading near record values.

One thing we feel grain producers should be considering as we move into the summer weather market is using options to hedge 2023 revenue guarantee levels that will be established during the month of February. The world may look a lot different eight months from now, and it makes good business sense to be proactive in protecting next year’s revenue guarantees. Please contact anyone in the AgMarket.Net team for idea on how to accomplish this goal, and as always, if you would any assistance in protecting the value of your crop, as always, feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.

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The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Brian Splitt

Technical analyst, AgMarket.Net

Brian began his career in the financial services industry with expertise in insurance products, stocks, bonds, mutual funds and annuities. Brian studied technical analysis and migrated to commodities where he has built a successful career. As a technical analyst with AgMarket.Net, he utilizes prior price or volume action or trends to predict future price moves and break down agricultural balance sheets. Brian is a decorated combat veteran of Operation Iraqi Freedom as well as a member of a Gold Star Family.

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