Overflowing Stocks, and Bright Prospects Pressure Grain Markets

Gregory Meyer reported yesterday at The Financial Times Online that, “Overflowing stocks and large prospective harvests have given grain markets a hard shove in the past month. Both corn and wheat futures have fallen about 20 per cent from recent highs in June. Last week, contracts of both grains for December 2016 delivery were the lowest since they first traded.”

The FT article noted that, “‘The market has really shifted away from thinking about the risk of a drought to now how much above trend the yield might be,’ says Darrel Good, agricultural economist at the University of Illinois.

“Anxiety rattled grain markets last spring as the world exited an extremely strong El Niño, the Pacific Ocean warming cycle.  Research by Prof Good and his colleague Scott Irwin found that a transition from El Niño to its La Niña opposite by summer, as sometimes occurs, risked reducing US corn and soyabean yields.

“But Prof Good says that, so far, conditions have reverted to neutral. ‘We really haven’t gotten into La Niña at this point, and if we do, that will come in later into the fall and probably not have much impact on the crops here,’ he says.”

Mr. Meyer also stated in his FT article that, “The summer crops will be grown on a lot of land. The USDA last month showed US farmers seeded a record 83.7m acres (33.9m hectares) of soyabeans in the spring and also increased acres of corn by 7 per cent to 94.1m acres, fourth highest ever.

“The grain outlook is also positive in other important regions such as Russia, Ukraine and the EU.”

Separately, in an update posted yesterday at the farmdoc daily blog (“Weekly Outlook: Soybean Prices Dominated By Supply Uncertainty“) Professor Good stated that, “November 2016 soybean futures traded to a high of $11.86 per bushel on June 13, $3.22 above the low reached on November 10, 2015. The price of that contract declined to $10.21 on July 8 and is currently trading near $10.65. As is typically the case this time of year, price direction will now be mostly determined by U.S. crop prospects, with the pace of consumption playing a minor role.”

The farmdoc analysis concluded by pointed out that, “While the strong pace of export sales and the domestic crush may have provided modest support for soybean prices, the major focus has been and will continue to be on U.S. weather and yield prospects. Crop condition ratings for the week ended July 3 indicated that 70 percent of the crop was rated in good or excellent condition. That compares to 63 percent rated good or excellent for the same week last year and the 30-year average of 60 percent for the same week. If maintained, current ratings would point to a U.S. average yield above the 2016 trend value of 46.1 bushels and above the USDA’s trend projection of 46.7 bushels per acre. Recent and upcoming rainfall will likely maintain high crop condition ratings for the near term. The main short term uncertainty surrounds the duration of an upcoming period of above normal temperatures for much of the soybean production area. With so much of the growing season remaining, however, yield uncertainty could persist for several more weeks. The resulting price fluctuations will provide opportunities for producers to make additional sales in the run-up to harvest.”

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