Todd's Take                   06/24 08:21

   Crop Prices Have Short Week of Big Bearish Changes

   For grain prices, it may only be a four-day week, but in this new era of 
inflation, the first three days have been surprisingly bearish.

Todd Hultman
DTN Lead Analyst

   For a week shortened by the celebration of Juneteenth, it is astonishing how 
stubbornly bullish grain prices unraveled so quickly. On Thursday's close (June 
23), after just three days of trading this week, December corn was down 75 1/2 
cents at $6.55 1/2 and November soybeans were down $1.22 at $14.15 1/2, both 
below their 100-day averages for the first time this year.

   July soybean oil has fallen over 6 cents since Friday, posting its lowest 
close Thursday in four months. Bean oil's two major influences, palm oil and 
crude oil, were both lower this week, but it was palm oil that drew extra 
attention with a 13% drop.

   U.S. wheat prices also participated in this week's big sell-off. September 
KC wheat fell over a dollar a bushel and closed Thursday at $10.10 3/4, the 
lowest finish in over three months and below the 100-day average for the first 
time since before Russia invaded Ukraine.

   Even more baffling, the bearish changes happened after a weekend when much 
of the Midwest experienced uncomfortably high temperatures, there is little 
rain in the U.S. forecast, the corn basis is uncommonly strong and old-crop 
futures spreads look extremely bullish for corn and soybeans. We also can't 
ignore that Russia continued its relentless attacks against Ukraine, including 
reports of damage this week from missiles at two grain terminals in the 
southern port of Mykolaiv.

   I can't justify this week's lower prices, but if I were forced to explain, I 
would say bearish market factors included a broad coverage of rain in the 
forecast across the Canadian Prairies and a forecast of milder U.S. 
temperatures for the remainder of June.

   Rain across Canada will be especially helpful to the western Prairies where 
conditions have been dangerously dry much of this year, but moisture in the 
eastern half is already plentiful and not so welcome. Moderate temperatures 
across the Midwestern U.S. will certainly be helpful to early row crop 
conditions that are already off to a good start. I would remind readers, 
however, that DTN's forecast for the months of July, August and September 
continues to expect above-normal temperatures and below-normal precipitation 
for most of the central U.S.

   As DTN meteorologist John Baranick pointed out in Wednesday's Ag Weather 
Forum 
(https://www.dtnpf.com/agriculture/web/ag/blogs/ag-weather-forum/blog-post/2022/
06/22/heat-ridge-shifting-west-offering), "a hot and dry July is still being 
forecast for most of the country." "The cooler forecast for the end of June 
does not mean July or August will be cooler."

   The most surprising change in June has been the sudden 22% drop in the price 
of September palm oil, the world's largest source of vegetable oil. In USDA's 
June World Markets and Trade report, USDA estimated world palm oil exports 
would be up 11% in 2022-23 and world ending stocks would be up 9%. This month, 
prices took USDA's view seriously.  

   Technically speaking, the two-year bull market in palm oil has been broken 
and, for the first time since the emergence of the global pandemic, a major 
food market appears to be returning to more normal conditions -- something we 
could also probably have said about crude oil, if not for Russia's war. Even 
though soybean and canola supplies remain tight, this week's bearish influence 
from palm oil also took those two prices lower and quickly drained money out of 
the accounts of bullish speculators.

   However, it is difficult to get too bearish on soybean oil. With diesel 
prices near record highs, the U.S. market desperately needs soybean oil to 
extend limited diesel supplies.

   Wednesday, June 22, President Joe Biden called on Congress to suspend 
federal taxes on gasoline and diesel for three months in an effort to give 
consumers relief from record prices of both fuels. Crude oil prices dropped a 
few dollars this week; not because of the President's proposal, but because 
there is a growing concern that the world's major economies are about to slow, 
prompted by hawkish anti-inflationary policies and by COVID-19 restrictions in 
China.

   Federal Reserve Chairman Jerome Powell got a lot of attention Wednesday when 
he told the Senate Banking Committee that a recession is a possibility and, of 
course, that fueled bearish worries of speculators that have been heavily net 
long in corn, soybeans and wheat most of this year. More fears were stoked 
after Reuters reported some G7 members will propose a temporary waiver of 
biofuel mandates at Sunday's G7 meeting. The level of support for such a 
proposal is unclear and does not seem likely in the U.S.

   The U.S. is not alone in facing a risk of recession. In Germany, Economic 
Minister Robert Habeck labeled Russia's decision to cut off gas supplies an 
economic attack, prompting the government to move ahead on an emergency energy 
plan, described as a close step to energy rationing.

   For those trying to manage risk on the farm in 2022, the decisions became 
more difficult this week. There is not much stress when bullish price behavior 
coincides with bullish fundamental market factors, but when the sleeping beast 
of noncommercial liquidation wakes up the way it did this week, confidence in 
bullish fundamental views is strained.

   Historically speaking, the prices of corn, soybeans and wheat are still 
high. Bullish risks of hot and dry summer months later this year are still in 
play and Ukraine's prospects for exporting significant amounts of grain in 2022 
are as bleak as ever.

   Here in the U.S., USDA estimates the winter wheat harvest will be 7% less 
than a year ago and spring wheat conditions are the fourth lowest for this time 
of year in two decades. Russia is expecting a big wheat crop in 2022, and even 
though there is uncertainty ahead, it is difficult to imagine U.S. wheat 
supplies not being tight again next winter.

   As the Wall Street Journal described Wednesday's attacks on grain terminals 
in Ukraine, the article also mentioned Russia has been conducting simulated 
attacks against Estonia, a NATO member (see 
https://www.wsj.com/articles/russian-refinery-set-ablaze-by-drone-crash-11655896
950 by Alistair MacDonald, Bojan Pancevski and Drew Hinshaw).

   It was not surprising to hear Estonia's Prime Minister Kaja Kallas has been 
one of Russian President Vladimir Putin's fiercest critics and is a leader in 
the effort to unite Europeans against Russia. According to reporters at AP, 
Kallas said some countries "were very skeptical two months ago," but now there 
are "different signals coming from different member states ... that they are on 
board ..." "So far," Kallas said, "it has been a negative surprise to Putin 
that we are still united" (see 
https://apnews.com/article/kaja-kallas-estonia-prime-minister-interview-5ad4bcc1
fd76d9c5530129160fafa814).

   For grain prices and energies, Russia's Putin remains a dangerous wildcard, 
threatening this year's supplies and exacerbating economic pain in the West. 
Even if grain traders choose to ignore the Putin risk this week, the problem is 
not going away.

   For producers looking at the entire growing season and not just this week's 
selling, there is still a lot to learn about the year ahead. This year's 
higher-than-normal levels of crop insurance protection remain an important 
safety net. If someone could tell us how either the weather or the situation 
with Russia is going to turn out, we could all breathe a lot easier.

   **

   Comments above are for educational purposes only and are not meant as 
specific trade recommendations. The buying and selling of grain or grain 
futures or options involve substantial risk and are not suitable for everyone.

   Todd Hultman can be reached at Todd.Hultman@dtn.com

   Follow him on Twitter @ToddHultman1




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