Price Movement Compared to Previous Two Years & El Niño
It’s been a long, painful week in the commodity market. As one commodity broker with CHS Hedging explained, “The combination of China’s cancellation, the Black Sea deal extension and favorable weather forecasts led to much weaker corn prices. Favorable weather forecasts for finishing planting and for early crop development, combined with a general risk-off day in the grains, gave us new lows in soybean future.” As of Wednesday, soybean prices have now retreated to the lowest prices we’ve seen since July 2022. Corn prices have now fallen into the lower portion of the range over the past 2 years.
The last 24 months in the corn market has seen a lot of extreme price movement. In May 2021 the front month made a run to $7.76 per bushel but by early September it had backed off to $4.87. Following that low the climb began once again and by the end of April 2022 prices had rallied beyond the spring highs of the previous year and posted a new high of $8.27 per bushel. Again, corn prices retreated following the April 2022 high to around $5.70 per bushel in July. In the fall prices rallied once again only to see the market fall apart once again in 2023. One of the glaring differences in this scenario though is the much earlier start of the price destruction this season vs the two previous seasons so we are beginning this new growing season at a much lower price level than the past 2 years. It makes one question exactly how low prices could potentially fall. Our corn prices need a significant weather complication to develop, some point to the current circumstances in North Dakota as that potential catalyst. The latest planting progress report indicated that only 5% of the states corn crop was planted vs the average of 26%. Thursday, May 25th is the final corn planting date for most of the state in regards to crop insurance although many farmers will continue beyond that date if conditions are fit. The weather outlooks are favorable though so I wouldn’t count on that situation rising to any sort of a market concern at this point.
In addition to the previously mentioned issues dragging down prices, this week’s slower-than-expected Chinese growth in retail sales, industrial output and fixed investments were also negative for prices. An analyst with Goldman Sachs said, “We don’t view April activity data as a turning point for growth…We believe China’s consumption led post reopening recovery is still largely on track, but some persistent weaknesses in the economy may require more targeted policy support to counteract.” Add to this the record crop grown in Brazil this last season inching global new-crop ending stocks to a fresh new high.
Reuters ran a short think piece regarding new crop corn prices…”Chicago December corn futures on Wednesday traded below $5 per bushel for the first time since 2021, supportive for those who believe new-crop corn has already inked its yearly high.
But there is one statistic possibly siding with market participants who remain hopeful of new highs.
The average price of December corn during February, which represents the insurance guarantee to U.S. corn farmers, is not too impactful for the futures market itself. However, this year’s price of $5.91 per bushel offers an interesting benchmark."
The EPA has sent their final rule regarding the amount of ethanol and other biofuel blending requirements for the next 3 years to the White House for review. It’s unknown at this point if the final rule sent contains any changes from the proposal announced in December that increased volumes and included a method to generate credits for electric vehicle manufactures that use biofuels to charge EVs. The volume increases proposed requires oil refiners to add 20.82 billion gallons of biofuels to their fuel this year; 21.87 billion in 2024; and 22.68 billion in 2025. This increase includes more than 15 billion gallons each year of biofuels like corn-based ethanol with the remainder to consist of advanced fuels.
Russia’s continual threat to end the Black Sea grain deal has become a bit of a repeated empty threat in an attempt to manipulate the West. By now Moscow should realize that this repeated threat will not benefit them, the West is not going to release sanctions regardless of the hype. On Wednesday we were told the “final” ship registered to move through the corridor had left the Ukrainian port loaded with 30,000 tonnes of corn in route to Turkey. Since then, the agreement has been extended for another 2 months.
The military in Ukraine began a new recruitment drive this year at the same time spring field work was to start. Several farmers, and an agrarian association told Reuters that the military call-up has made finding help on the farm much more difficult. They said it’s really impossible to know the full impact the shortage of workers will have and are chalking it up to one more adversity resulting from the war.
The arrival of what many believe will be a super El Niño weather pattern is nearly upon us and the resulting outcomes won’t be good. It’s expected that the pattern change will cause widespread damage to our eco systems, diminish Pacific trade winds, force changes to ocean currents in the Pacific, in addition to many other global weather patterns. NOAA has been watching the warming of the ocean temps for several months and now say there is a 90% chance it will arrive by July and persist into 2024. El Niño weather events are not unusual and typically develop approximately every 2 to 7 years, the strength and duration of the weather event also vary.
Temps tonight will cool quickly with most of the Upper Midwest expecting lows in the 40’s, a few isolated areas could fall into the upper 30’s.
Temperatures will improve quickly tomorrow and a pleasant weekend with sunny skies and a light breeze is expected this weekend . Forecasts for next week, the Memorial Day holiday weekend and into June look warm and dry… so far.
There is one possible monkey wrench that could change temperature outlooks for the U.S. next weekend and that is a tropical cyclone that is developing in the western Pacific. If the cyclone recurves into the North Pacific it will buckle the NW jet flow over the U.S. in 6-10 days. That would mean the possibility of cooler temps entering the country around the Memorial Day holiday.