Several Significant Global & More Precipitation in the Forecast
Update for April 21st, 2022
There are several significant global concerns driving market prices higher. The war in Ukraine is diminishing hopes for a normal crop season and has raised fears of possible supply shortages of both corn and wheat. Covid lockdowns are still in place for most of Shanghai, China which is impacting Chinese demand for U.S. commodities. Crop conditions in Brazil are not ideal and weather outlooks show little to no precipitation through the end of April. The latest concern added to this list are the cold and wet conditions found across the U.S. Corn Belt, delaying the start to the spring planting season.
These market concerns have managed to push corn over $8 per bushel this week and soybean prices above $17 per bushel. Brian Splitt, technical analyst with AgMarket.Net stated, “The last time we had a front-month corn trading above $8 was in 2012. That was in August when we had a drought. When you look at what front-month high was made in 2012 it was around $8.43.” He also said, “The whole board is going together. This is not just the front leading it. The front is more than the back end, but we’ve got all contracts making new highs.”
As of last Sunday, April 17th the USDA estimated that a total of 4% of the U.S. crop has been planted vs 7% last year and the 5-year average of 6%. President of Standard Grain, Joe Vaclavik said, “On the weather front we’ve had a less-than-ideal start to the planting window in the Corn Belt. That doesn’t mean that things will be delayed to any material degree.” Vaclavik believes that the corn market is working to push prices higher in an attempt to buy back some corn acres that were lost to soybeans in the March 31st Planting Intentions report. “I just don’t know if that sort of shift back to corn acres is even possible given inputs and fertilizer costs. It is still a wildcard, but it’s tough for me to believe corn will buy back a material amount of acres at this point.”
Some of Brazil’s largest grain producing states are found through central regions of the country. But dry forecasts for the 2nd half of April for these key crop growing areas may limit the yield potential for the 2021/22 Safrinha corn crop which typically accounts for 75% of Brazil’s total yearly corn production. Currently estimates call for a Safrinha harvest around 88.5 MMT but the dry outlook that is expected to remain through at least the end of the month has farmers concerned. Marco Santos an agricultural meteorologist at consultancy Rural Clima said that while there is no rainfall forecast for central Brazil until the end of April a cold front is expected to bring showers to Southern Brazil, especially in Parana, later this week. The estimate for 2nd crop corn in Parana sits at a record 16 MMT but Edmar Gervasio, a corn specialist with Parana’s agriculture department told Reuters that he sees a definite possibility of the state producing a “super crop” this season.
U.S. crop production this season is particularly important. The Black Sea region is a major supplier of corn and wheat on the global market but the war in Ukraine has cast a lot of uncertainty regarding the reliability of supplies originating out of the Black Sea. Given current circumstances, expectations for production out of Ukraine this season have already been reduced by 1/3 to 1/2 normal levels. In addition to the worries of crop production is the challenge of how to export the product now that ports have been blocked and in some places destroyed by Russian attacks. Following the Russian invasion, 300 ships carrying at least 1,000 seafarers have been trapped for weeks, unable to escape the fighting. The vessels were not stocked for this amount of time so food and medical supplies onboard are running critically low. 57 of the blocked ships are loaded with a total of 1.25 MMT of grain and oilseed. Now Ukraine’s farm minister, Mykola Solskyi is warning that if these vessels remain loaded for more than 3 months, “problems arise and part of the cargo can be spoiled.” (Reuters)
Jerry Gulke, president of the Gulke Group was asked his outlook regarding the war in Ukraine and the effect it is having on world markets. He explained, “More and more people are saying this could drag out for months or maybe even years, depending on the success of Putin and whether he can win the war. I think the bottom line is we’ve disrupted the flow of grain enough to where time is running out.” Gulke is concerned that the even though Ukrainian farmers are working on spring planting, odds are that the world market will be short some grain this year.
Gulke believes that markets are still reacting to the USDA acres split announced in the March 31 report. “December corn took off and shot straight up. And now soybeans are trying to keep from losing acres.” He went on to say “I’m concerned even as friendly as I might be that I am underestimating the degree of the price we’re going to have to see before someone doesn’t use our grain and we curb demand significantly.”
Gulke was asked how high will prices need to get before demand disappears. He explained, “The definition of a bull market is higher and higher highs and higher and higher lows. Markets get to a point where they no longer have to go any higher because it has priced the product high enough to where demand reduction is occurring.” He gave the example from a few weeks ago when old crop corn closed below the previous weeks low. “That gave me caution that at $8 you’re going to start curbing demand. We did hit $8 in the lead contract. When you make new highs over $8 in the old crop corn, you got to reassess what in the world is going on.” “We have a lot of stuff in the mix. It’s good news for farmers and bad news for suppliers and buyers. A lot of reckoning is going to have to happen in the next few weeks and months.”
An active weather pattern is setting up that will last through the weekend. There are several chances for showers and heavy rainfall over the next 4 days depending on where the front sets up but finally some warmer temps are forecast to arrive with highs finally reaching into the 60’s and 70’s.
Another large snow event is in the forecast once again. The snow track is expected to follow a similar path to last weeks storm system. Some models are showing a snowy outlook all the way out to May 4th.
