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Commodity Price Links, SAM Crops and 30-Day U.S. Forecast

Update for January 21st, 2022


On Monday the USDA launched a new conservation program with the goal of doubling the current amount of cover crop acres to 30 million by the year 2030. The Natural Resources Conservation Service (NRCS) has been authorized to spend $38 million in 11 states. The program is designed to boost soil health, limit erosion as well as capture and store carbon during the off-season in an effort to address climate change. Reuters reports that farmers and ranchers from the states of: Arkansas, California, Colorado, Georgia, Iowa, Michigan, Mississippi, Ohio, Pennsylvania, South Carolina and South Dakota are eligible for the program.


The situation along the Ukraine border with Russia is of great importance to U.S. agriculture. This region exports over 90 million tons of goods each year so the possibility of a significant conflict with Russia rattles markets and sends commodity buyers to the reliable source in the U.S. Stone X Chief Commodities Economist, Alan Suderman explained the situation,


“Russia is a major global source of crude oil, but it is also the world's largest single country exporter of wheat. Russia will export 35 million tons this year, only exceeded by the collective group of countries in the European Union that are expected to export 37.5 mmt this year. For comparison, the United States is expected to export 22.45 mmt of wheat this marketing year.

In addition, Ukraine is expected to export 24.2 mmt of wheat this year and 33.5 mmt of corn”.


“Some have speculated that Russian President Putin would like to reunite the old Former Soviet Union, but a full-scale war with Ukraine would be extremely costly to him. The casualties of war do little to boost political capital at home unless he can get something for it, and sanctions from the west could be costly.

But President Putin has already invested too much capital in the troops buildup to come away empty. One of his objectives is likely to simply drive a wedge between NATO allies, while also eating away at the territory that he wants.

Regardless, the risk is to the commodities traded out of the region, including vast amounts of crude oil, wheat and corn, with global supplies of all three currently snug”.


Inflation is an issue of great concern as it has now reached levels not seen for decades. Stocks, bonds and Real Estate-including farmland are now at or near record highs. While crop prices have rallied from the lows in 2020 during the pandemic, commodities remain cheap in comparison. The Bloomberg Commodity Index is a measurement of commodity values relative to price and investment return performance. Bloomberg’s most recent evaluation is shown in the following graph.




Technical charts indicate that if MAR22 corn could move through the December high of $6.17 the next target price would be $6.40. Since June though 2021 corn has only closed above $6.10 three times and two of those occurred this week. New crop contracts are also strong, the DEC22 contract recently hit a new record high. Some of the factors influencing prices:


· Weather concerns regarding the SAM crop continue despite recent rainfall in the driest areas, because in many cases the crop damage is beyond repair. Reports out of Argentina indicate that only 22% of the corn crop is considered GD/EX while 37% is listed as P/VP.

· 2 of our largest competitors in global corn exports-Argentina and Ukraine are facing (very different) uncertainties at this time. Like I mentioned before this has potential buyers concerned which has persuaded some to consider the stable and reliable source available here in the U.S.

· Ethanol demand has returned from lows in 2020.

· Crude oil prices are back above $80 a barrel and prices are expected to increase going forward, pushing gas prices to the highest we’ve seen in years.

· An important 2022 acreage battle is well underway and could help maintain current price rallies.


Keep in mind though that once these variables play out the “risk premium” associated with them disappears and prices move lower-unless the results are worse than anticipated. Soybean prices are also factoring in some of these same concerns and will remain vulnerable to outside news.


Rainfall and cooler temps finally arrived in key corn and soybean growing areas of Argentina over the past weekend. The lead agronomist with the Rosario Grain Exchange said, “There was a change in the dynamic and that change means we won’t have to make a similar cut in the near future in Argentina and the situation will probably not get worse…Losses are not expected to be recovered however.” Reports out of Brazil from the office of the USDA’s representative in the country indicates that the official USDA estimate of 139 mmt is too high and should be closer to 136 mmt. “This season sowing began optimistically, with most soybeans planted on time compared to last year. However, extreme weather, with drought in some regions and excessive rain in others, has dampened prospected for a record crop.” Some private groups are projecting an even larger loss of yield with total production in the mid 130’s. Last year production reached 138 mmt and if new estimates are correct this season’s crop will fall short of last year’s record despite the 3.5% increase in soybean acreage this year.



If Argentina can continue to receive timely rainfall they may very well avoid any further crop losses, but it may be too late for southern Brazil and Paraguay crops to see any benefits. These areas are further along in their growing season and the crop stress during critical periods of development all but guarantees big reductions in yield.




Cold temps have been in control across the Upper Midwest most of this week. Unfortunately, we may now be looking at the chance for more measurable snowfall over the weekend. This is not an official forecast as of yet just model runs. The EURO model has remained the most consistent with the track and snowfall totals over the last 2 days but I also included the GFS for reference.


EURO

GFS


Looking ahead at the long-range forecast the EURO model shows a very wintery outlook for the next 30 days. The first graphic shows the forecasted temperature departure from normal during through February 18th. These temperature departures from normal are considerable especially since they are averaged over a 30-day time span.



The precipitation forecast during the same time period is shown below. The northern half of the country should prepare for substantial snowfall totals.




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