What's Going on Prices?
Spec funds have been liquidating long positions in the crop markets for 5-weeks. On Tuesday the pace of the sell-off increased, particularly in the corn market. Along with corn the wheat market also has seen notable fund liquidation. The downturn in these two major markets has traders looking for additional selling because as the saying goes “the trend is your friend”. Or not in this case. There are several factors working against the bull market. U.S. corn and soybean planting progress has caught up with the 5-year average in most states. Harvest of the Safrinha crop in SAM has begun. Ukraine has been able to plant more acres of corn and wheat this year than had been expected and Russia has been in talks with the West to allow Ukraine to export grain from ports along the Black Sea. It’s important to remember that ultimately the quantity of grain Ukraine may be capable of exporting is completely unknown and at this point the market reaction to the news is purely speculative. A senior official with the UN reports “constructive” talks have occurred with Russia in regards to exports of grain and fertilizer. To this point the West has not sanctioned exports of either of these commodities sourced out of Russia. Some U.S. companies are concerned about the reliability of these products so “comfort letters” are being prepared in an effort to reassure these nervous businesses. On Monday Putin said that he will offer “unfettered access” to grain exports out of Ukrainian ports. It still appears as though Putin will require the lifting of some sanctions in return. (Reuters) Yesterday, UN Secretary General Antonio Guterres said that any agreement to restore shipments out of Ukrainian ports was still a ways off. Commodity prices rose sharply following the Russian invasion of Ukraine. But this week 5 university economists stated that they don’t believe these prices are likely to remain this high long-term. One of them wrote in the FarmDoc daily blog, “Still, those ramifications are in the future... The timing of price declines is uncertain. The Ukraine-Russia war could have much longer-run impacts than are currently anticipated. How inflation and other events play out is uncertain.” The U.S. Congressional Budget Office projects that we will see a return of lower-than-average commodity prices that will range around $3.90 per bushel for corn, $10 per bushel for soybeans and $5.15 per bushel for wheat following above- average prices during the 2021/22 and 2022/23 growing seasons. Four university economists from the University of Illinois and one from Ohio State University agree and warn that the agriculture sector will require “considerable adjustments”. That becomes very obvious when breakeven costs are examined. In Illinois this year breakeven costs for a bushel of corn averages $4.73 per bushel and $11.06 per bushel for soybeans. If market prices return to predicted levels this will mean input costs will need to revert back to cheaper prices or producers will be forced to decrease the usage of these products and land prices are also likely to come under pressure. “Movements back to 2006-2020 averages suggest that the current robust market resulting from China and the Ukraine-Russia conflict are transitory and will also result in growth in agricultural output, leading to lower prices.” Planting progress of the 2022 U.S. corn and soybean crops has made huge advancements over the past few weeks and now only trail their 5-year average pace by 1%. 2 of the states trailing furthest behind in planting progress are Minnesota which is 82% planted vs the 5-year average of 92% and North Dakota where 56% of the corn crop is planted vs the 5-year average of 83%. Lee Briese, agronomist and soil scientist located in SE North Dakota described the situation as a ”nightmare” in terms of spring planting. He said that (as of May 22nd) some guys had only been able to plant 10 to 20% of their acres and some had not been able to even get in the field. Current estimates indicate that there are close to 3 million acres of unplanted corn acres yet in North Dakota and Minnesota. With 56% of the intended corn acres in ND planted that leaves 1.58 million acres unplanted as of Sunday. In MN farmers have 82% of the 7.8 million acres intended which leaves 1.4 million unplanted. Combined this leaves 2.98 million unplanted corn acres in just those 2 states. Rainfall over past weekend hit some areas hard bringing fieldwork to a halt. While many of these acres will switch to other crops only a small amount are expected to enroll in Prevent Plant. (Photo below taken in North Dakota)
One producer from East Grand Forks, MN told DTN that the rain that fell late last week convinced him to switch his 300 unplanted corn acres to sunflowers. “With all the rain and the forecast, we don’t think we’ll be rolling a wheel here until June 3, so we just pulled the plug on corn.” He said that many others that he knows are changing to soybeans but very few are talking prevent plant acres. “I think if prices were lower, there would be prevent plant all over the place up here. But right now, I think guys will put anything in. To me, the market is very clearly saying ‘Plant a crop! Get it in the ground.”
Harvest of Brazil’s 2nd season corn crop, Safrinha has begun. Dr. Michael Cordonnier of Soybean and Corn Advisor says the cold and dry weather continues to threaten the crop. The last substantial rainfall occurred more than 60 days ago, early yield results are highly variable with some average yields and some very low yields. In addition, several regions including Parana and Mato Grosso Do Sul are dealing with pest damage, most coming from corn leafhoppers. Cordonnier also noted that some farmers that are purchasing inputs for the next soybean crop season and are reporting an increase in costs of 30% or more compared to 2021/22.
The precipitation outlook through next Thursday is shown below. Most of the country will receive some precipitation with the exception of the Southwestern U.S. The overall cool trend continues into the 8-to-14-day outlooks, but the above-average precipitation shifts further to the southeast of our region.
The 3-to-4-week outlooks from NOAA are below. The warmer and drier pattern expected for the summer may be making its appearance right on time.