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Prices off, but tight supplies buoy market

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Five grain and oilseed commodities show alarmingly tight ending stocks.

Last week grain prices sold off harshly, prompted by wide spread rain on the radar, following a three day holiday weekend.The price losses last week wiped out the price gains from the bullish June 30th Quarterly Stocks report and Planted Acres report.

In previous years, trader mentality has been that rain makes grain. Seasonally, and historically, if rain occurred in July over the Midwest, prices would work lower amidst the notion that the “crop was made.”

For the past seven years, that bear market mentality worked because ending stocks were huge, and production was looming large.

But it won’t work this year.

Tight supplies in FIVE commodities

The difference this year, is that there are now five grain and oilseed commodities with alarmingly tight ending stocks, and lower production numbers for this growing season.Oats, canola, spring wheat, corn, and soybeans. I don’t ever remember a set up like this where five commodities are suddenly low on supplies for old crop and new crop, with whispers of lower global production as well.

Old crop ending stocks for soybeans are pegged at 135 million bushels, with new crop estimated at 155 million bushels.

All wheat ending stocks for the 2021/22 season are projected at 665 million bushels, the smallest amount since 2013/14. Spring wheat ending stocks for 2020/21 are at 235 million bushels with the 2021/22 season projected even smaller at 119 million bushels.

Old crop corn ending stocks are marked at a low 1.082 billion bushels with new crop projected (at its likely largest potential for the 2021/22 marketing year) at 1.432 billion bushels, with trade expecting that number to be reduced in coming USDA reports.

Ending stocks for oats for the 2021/22 marketing year are down to just 25 million bushels. All of these ending stocks numbers are considered historically small. And while the United States does not have an exceedingly large amount of acres in canola production, the production in the United States is at risk due to drought in the Northern Plains. In addition our friends to the north in Canada suggesting their crop may be the smallest in decades, which pushed canola futures to new highs this week. 

Weather will still be scrutinized

Because supplies are so alarmingly small for five different commodities, record production is needed, for this crop season. Unfortunately, this crop season in the United States did not start off on a perfect note with early planting, snow, frost/freeze, early drought and extreme high temperatures, and then too much rain in parts of the eastern Midwest.

Because of the early production issues, and even with the recent rains, traders are now thinking a record national yield is not possible. Yet at the same time, it is too soon to suggest a drastically smaller crop.

Range trade

As of this writing, corn and soybean prices are currently trading near the middle to upper end of recent trading ranges.

December corn futures have a current range where $6.00 is overhead resistance, and $5.00 is support. November soybeans have a range where $14.50 is resistance and $13.00 is support. Yes, both are wide trading ranges, but they are important to understand. The next bigger break out move will likely be measured by the price difference between those trading ranges. $1.00 trading range for corn and $1.50 trading range for soybeans.

Range trade for corn and soybean futures seems likely until more information is gathered regarding crop size. Expect trade to continue to trade every weather forecast; no rain and heat will send prices to the higher end of the range. Rain in the forecast will justify a reason to sell prices back down to the lower end of the trading ranges. This pattern seems likely until we head into late July and August and see weather forecasts for critical corn pollination and soybean pod filling.

Yields that move price

What will it take to get prices to move out of these trading ranges? Here is what you need to know for the “line in the sand” when it comes to yield.

Regarding soybeans, the current ending stocks forecast for 2021/22 is 155 million bushels, with a stocks/usage ratio of 3.5%. The USDA is currently using a national yield projection of 50.8pba. If yield comes in the same as last year at 50.2 bushels per acre, ending stocks would project down to 103 million bushels, with a stocks/usage ratio of 2.3%. If yield is estimated to be less than 50 bushels per acre, that would be a reason to justify November futures trading through $14.50 resistance, with an upward potential price target of $16.00 futures. 

When looking at corn, USDA is currently using a record potential national yield of 179.5 bpa. The previous record was 176.6. If we assume the previous record high yield of 176.6 bushels per acre, ending stocks would drop to 1.197 billion bushels with an 8.1% stocks/usage.

The line in the sand for corn is 175 bpa. If yield is perceived to be less than that, then that would justify price action for the December futures contract to trade above $6.00, with $7.00 corn as a potential target higher, which would also fill the gap that on continuous weekly charts for December futures that I wrote about a couple weeks ago.

You can see that weather does still matter. There is not a quick fix for the tight ending stocks that are now showing up in five commodities. Think of the potential battle for acres that lies ahead for next spring!

On the flip side of this, should timely rains occur, with moderate summer temperatures, traders will push prices lower due to a lack of bullish news, and the seasonal price slide into harvest has the potential to take over.

This is truly a historic situation where both unpriced bushels and priced bushels need to be monitored. There is tremendous value in front of you to protect.

 

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

 

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation

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