The grain rally continues as tight U.S. supplies remain. Planting progress is swift for the 2021/22 crop, yet drought concerns linger.
Corn and soybean futures prices remain in a solid uptrend with more volatility expected. With the ending stocks story still supportive for both old and new crop, a large price setback seems unlikely at this time. Yet, there is little fresh news to suggest that prices need to continue their buying bonanza. Range trade might be the theme for the coming weeks.
While we wait for new and exciting fresh news, here are four noteworthy items to keep an eye on:
1. Inside USDA’s numbers
The May 11 USDA WASDE report came out with few surprises. Old crop ending stocks continue to slowly shrink. From here until the end of the crop marketing year in late August, USDA will likely continue to very gradually reduce ending stocks. I highly doubt that they will do any dramatic ending stock reductions until they know for sure how many acres of 2021/22 crop are actually in the ground and growing.
For new crop ending stocks, much of the data released was also expected. USDA used the acres from the March 31 Prospective Plantings report along with trendline yields. These are the numbers that trade will have to use and monitor until the June 30th final planted acre report.
What about demand? The usual “tweaks” were made, easily changeable in upcoming reports to grease the wheel as needed. Demand for corn and soybean exports were reduced slightly for the 2021/22 crop year, which was not a surprise. Chinese demand for the 2020/21 crop year was insatiable, and likely not to repeat in the same manner unless China suffers weather issues this summer.
Quickly gobbling up that demand, however, was the biofuel category. Corn use for ethanol is expected to grow from 4.975 billion bushels to 5.2 billion bushels in the 2021/22 crop year. Soybean crush demand for the 2021/22 crop year is expected to be stronger, coming in at 2.225 billion bushels, up from 2.190 billion bushels last year. Specifically under the soybean oil category, biofuel demand is expected to be up to 12,000 million pounds, up from 9,500 million pounds this last year. No wonder new soybean crushing facilities are being built!
2. About those crushing plants
Archer Daniels Midland (ADM) announced earlier this week it will build a soybean crushing plant in North Dakota. The $350 million facility will be in Spiritwood, and will process 37.5 million bushels a year. In addition, construction is proceeding on a $270 million soybean processing facility near Shell Rock, Iowa, slated to open in late 2022. It will crush 40 million bushels of soybean annually, or 110,000 bushels per day.
3. Mississippi River closed
At a time when demand for U.S. grain for exports is still strong, a transportation snafu occurred on the very important Mississippi River waterway. On May 12 the U.S. Coast Guard reported that it issued a waterway restriction closing the Lower Mississippi River to all vessel traffic between mile markers 736 and 737 due to a crack discovered on the center span of the I-40 bridge in Memphis, Tenn. The The U.S. Grains Council said there are currently 16 vessels with a total of 229 barges in the queue, with no word on when traffic will be allowed to resume. This may be a non-event, or depending on how long river traffic is backed up, may become an issue for U.S. grain exporting companies.
4. May futures expiration
This may not seem like a noteworthy event in most years. This year it has my attention primarily to know where those contracts “go off the board.” Can May 2021 corn futures get up to that magical $8 number? Can May 2021 soybean futures reach the lofty $17.00 mark?
Whether they can or can’t, it did make me wonder how many years the price high for grains ever occurs during the month of May.
Over the past 15 years there were only two times that the price high for grains was made during the month of May; 2014 when large planted acres were expected, ending stocks were growing, and prices were still coming down from the 2012 highs; and 2018 during the black swan of the tariff/trade war. Usually the price high for corn and soybeans occurs during either June or July. (2012 was the exception with the price high occurring in August due to the drought.)
So however high the price of May futures can climb over the next two day before the contract expires on Friday, May 14, there are still good historical odds that prices can continue to climb higher yet into either June or July.