Corn made large gains this week following wheat, but not with the same panic. While Ukraine is a major corn exporter, it is not on the same level of wheat. Corn’s moves will be similar to wheat as the news from eastern Europe, and war will be problematic for the world balance sheets. While it has not moved with the same vigor as wheat, the $1 gain in the last eight trading days shows the potential fallout from this spooks the market. It is hard to tell how many acres will be lost this spring, but it is estimated that only 60% of corn seed is on farms. How likely is it the rest will make it to the farms? We cannot be sure, but it certainly won’t be much more if the conflict drags out. We are still in an inflationary environment, and fund money is very much in these markets, so when they decide to take profits, we will see the same volatility we have of late.
Soybeans gained on the week but barely when compared to corn and wheat’s gains. Corn and wheat are major exports for Ukraine and Russia out of the black sea area where beans are not, so they are not immediately affected. South America’s weather outlook has improved but will not turn around the crop too much after its rough start. Soybeans will benefit from the corn and wheat stories, but they also have their own story to follow in South America.
The soft red winter “Chicago” wheat is in full-on panic mode, as you can see from the limit move days in the chart below. The war in Ukraine does not seem to be ending soon, and the sanctions on Russia will last and hurt their economy. Eventually, the market will figure out what fair value wheat is, but for now, with the potential for Ukraine to not do their regular care of the crop, it is on a ride. If Ukrainian farmers cannot apply the fertilizer they usually do, the crop will shrink by several metric tons and could be double digits. Ukraine is the 5th largest exporter of wheat globally; Russia is number 1; this conflict will have major ramifications in the wheat market for the foreseeable future.
This week, the equity market made decent gains as they have had a mixed trade the last few days. Jerome Powell said this week that it is all but a certainty that rates will be raised 25 basis points in the March meeting, lower than the 50 thought a few weeks ago before the war with Russia and Ukraine. Inflation has been bad the last year and will not improve soon with higher commodity prices across the board and Russian sanctions presenting a problem for some trade. Look for investors to focus on U.S. equities for the time being, as Europe and emerging market countries use Russia for a lot of their energy and could see issues with production and energy crunches.
Crude moved higher this week as sanctions against Russia have made the future of Russian oil exports cloudy. The U.S. purchases roughly 600,000 barrels of crude from Russia a day, which does not help our already high gas prices. Crude still has room to go higher as ramping up production to make up for any lost oil takes months to do. If this conflict drags out, we will see elevated fuel prices through the summer and be a larger expense on the farm than the last few years going back to 2014. The 10-year chart below shows the current levels to 2014 to help you budget if you did not hedge your fuel prices.
Tune in as biotech guru Dr. Channa S. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between.
Why producing crop plants with a much gentler footprint on the natural resources will help feed the growing population. How 75% of the world’s patents in agriculture gene editing are coming from China. Understanding that trying to impose restrictions on our ability to grow food can be a considerable risk to agriculture. Listen to hear about these topics and more!
Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].
Corn was up a lot this week for similar reasons as wheat, with the Russian invasion of Ukraine pushing commodities higher. The conditions have improved in South America, but the length of trouble still caused large amounts of damage to the crop that we still do not know the depth of. The USDA Ag Outlook Forum came out with 92 million acres for corn, with some acres going to soybeans along with a 181 yield. A 181 yield would be a record crop, but with the supply chain issues, fertilizer prices, and availability of chemicals, many factors could affect yield if farmers can’t get all the inputs. Ukraine and Russia will be the market-moving news for now until we get a better idea of the long-term consequences. The February insurance price for corn is $5.89 ½. Friday’s early selloff will test the bulls for all markets.
Soybeans gained on the week as the Russia and Ukraine news dominated headlines. Outside of this news, the weather outlook improved for South America that would have been bearish for bean prices if the eastern European turmoil was not going on. The USDA Ag Forum came out with an estimated 88 million acres with a 51.5 bu/acre yield for beans this year in the U.S., which is a bearish number but not surprising at these current price ranges. The November bean price had a more visceral reaction as it fell quickly Thursday off the highs having over a $1 trading range for the day, ultimately falling 36 cents to $14.51 ½. The February insurance price for beans is $14.33 ½.
After days of large gains earlier in the week, wheat was limit up on Thursday after Russia invaded Ukraine. Ukraine is a major exporter of wheat and other agricultural goods as it is the 5th largest wheat exporter in the world, with Russia being #1. Not only is the world wheat supply threatened, but all trade in the Black Sea area will be affected, potentially only for a short period but disrupted, nonetheless. Russia accounts for more than 18% of the world’s wheat export and is a large oil and natural gas exporter, so any sanctions that hit their export economy could see ripple effects. This is only the beginning of this conflict, and wheat will be along for the whole ride, so you should expect volatility.
The equity markets continue to get crushed as, along with the struggles since November, we now have a war between Russia and Ukraine. This will make the Fed hesitant to raise interest rates, but as the bond rates have already risen, we are heading that way, whether it is a 25-point or 50-point bump. Tech stocks (NASDAQ) hit a 20% decline since November highs on Thursday before bouncing off the lows. Volatility will remain in the market as Russia remains a threat and China is a large unknown moving forward. Commodity prices have risen even more with oil nearing $100, so the inflationary pressure on the markets will not disappear any time soon.
Tune in as biotech guru Dr. Channa S. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between.
Why producing crop plants with a much gentler footprint on the natural resources will help feed the growing population. How 75% of the world’s patents in agriculture gene editing are coming from China. Understanding that trying to impose restrictions on our ability to grow food can be a considerable risk to agriculture. Listen to hear about these topics and more!
Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].
How Financial Institutions and Insurance Companies Play an Essential Role in Feeding the World
The cost of farming has grown over the years, which means financial institutions are amping up their reviewal process for loans and increasing insurance deductibles for protection to reduce their loss risk. What does this mean to supporting food production for the world? Well, as part of our “What It Takes To Feed The World” series, we are diving into critical agriculture sectors and bringing awareness to their roles in the food production cycle.
Financial institutions and insurance companies are the starting point in the process and are essential in providing the necessary funds to farmers on through to commercial entities. For farmers, they help finance EVERYTHING from the seed and chemical to hedge lines for farmers to help manage their price risk and everything in between. For commercial and end user entities, financing includes loans to build and maintain infrastructure and logistics to short term bridge loans to buy directly from farmers on to their own hedge lines of credit to support carrying of positions both pre and post harvest.
What financial and insurance options are available to the agriculture industry, and how are they beneficial to farmers, commercials, and end users? We’ll discuss the answers to these questions and more below.
Farmer Direct Loans
Farm direct loans are loans that the government makes available via the Farm Service Agency, while banks provide similar farmer direct loans. In 2021 the FSA reported loan obligations of $6.67 billion. Meanwhile, in 2020, U.S. farm banks loaned $98.6 billion. The American Bankers Association defines farm banks as banks whose ratio of domestic farm loans to total domestic loans is greater than or equal to the industry average. These amounts show just how much money is needed to produce the U.S. crop each year before farmers even harvest and sell the crop. These loans range from rent payments to fertilizer costs to machinery. But farm banks aren’t just offering loans to the agriculture sector. In 2020 total bank lending reached $174 billion in farm and ranch loans (including the $98.6 billion). These banks play a significant role with billions in small farm loans and even microloans. Small farm loans are less than $500,000, and microloans are less than $100,000. These two categories alone totaled over $55 billion in 2020.
Hedge Margin Lines
Banks also help finance hedge margin lines to help farmers manage their price risk. By financing the hedge lines, banks allow farmers to place hedge positions in a brokerage account, protecting against adverse price movements that could lessen the value of their crop. When banks loan out money, they expect to be paid back; hedge credit lines are a tool banks use to help support the farmer being able to do so. If your bank is NOT willing to extend a hedge line – please give us call!
By financing hedge margin lines, banks support the farmer and themselves. With loans comes default risk and hedging is one tool to help mitigate the price risk that ultimately will be how the farmer pays back the loan.
Banks and the Rest of the Sector
There’s no question that banks are involved in the food production supply chain. When you think about it, commercials, end-users, and other units that touch grain utilize bank loans to enhance their businesses. Like feed yards and elevators, end-users use banks to improve their infrastructure by adding more storage or drying systems, using short-term loans to purchase grain and make other improvements to their business. These improvements ultimately improve the efficiency of the entire system and potentially lead to reduced costs of the final product, which helps the end consumer, people. Just like improvements to city and towns infrastructure are necessary, through the support of bank financing, these improvements are necessary to the health of the agriculture industry’s infrastructure.
Farming is not getting any cheaper, and more capital is required to produce excellent crops year after year. Banks’ loaning capacities play a major role already, but if we are going to keep up with growing demand in a growing world, their role will be even more critical going forward.
Crop Insurance
Crop insurance brings continuity to the industry year-over-year as the ups and downs of weather and prices can cost farmers millions of dollars if unprotected. There are two types of insurance for major field crops: yield-based, which pays an indemnity (covers losses) for low yields, and revenue that ensures a level of crop income based on yields and prices.
Insurance offerings and prices vary on where you are located and your land, but like other forms of insurance in your life, it is better to have it and not need it than need it and not have it. While the listed above are the main types of insurance, others can be purchased, like drought insurance for pastureland and hail insurance if your crop gets damaged by an ice storm. These are more specific to your geographic location but play an essential role.
Like banks, insurance companies help with the continuity of the agriculture sector. These companies along with government subsidy programs, provide the opportunity to continue farming when disaster strikes and threatens the financial stability of a farm.
How RCM Ag Services Partners Financial Institutions & Insurance Companies
For our Farmer Direct customers, RCM Ag Services partners with banks and insurance companies to provide our mutual customers daily expert market knowledge and advice. We are firm believers that the long term health and growth of our local farming communities requires a team approach that starts with the farmers and their banking and insurance teams.
For our commercial and end user customers, we are focused on evaluating profit margins and the cost of capital for managing the current and futures market risks. Our Ag Services team is working directly with lenders, 3rd party credit suppliers, as well as USDA government programs to support the long-term financial health of the commercial business sector.
Along with market knowledge, our brokerage services allow us to establish hedge accounts that banks can fund with a credit line, as discussed above. Our brokers have over 150 years of combined experience in the market that helps them provide hedge advice that is customized to each operation, not cookie-cutter advice. Take advantage of these benefits and call one of our knowledgeable ag specialists today at 888-875-2110 or email [email protected]
Corn made small gains on the week as grains did well across the board. The forecast for South America can’t seem to make up its mind switching back and forth on rain amounts. Argentina has consistently had rain in the forecasts, but what parts of the country and the amount has been inconsistent. Exports were better this week than last, but nothing crazy; potential conflict in Ukraine and further issues with the South American crop could see those numbers pick up soon. The markets are not open for President Day on Monday the 21st, so there is more time to develop around the world. Based on the Dec ’22 futures for corn after today, the February insurance price is $5.84 ¾.
Soybeans were up slightly on the week but have been relatively flat (relative to other weeks) the last two weeks, as you can see in the chart below. The continued weather issues in South America and the Russia v Ukraine possible invasion have been the movers for beans just like corn and wheat. Bean exports this week were the best of the group, with a flash old crop sale being announced on Thursday. We have seen private estimates continue to roll in for production in South America and what to expect this year in the US. The USDA Ag Outlook Forum will start next Wednesday, and we should find out what they are expecting for the year ahead and how the US will affect balance sheets. The insurance price for beans is $14.22 ½.
Wheat has been on a roller coaster the last two months with the ups and downs and uncertainties around Russia and Ukraine. A Russia invasion would be bullish for wheat as countries would shy away from trade with Russia, and Ukraine would stop exports as they try to keep Russia at bay. The Black Sea is a major world trade region. This conflict could lead to potential stoppages, shortages, or even a possible blockade in the region that would cripple a major trade corridor. Keep an eye on this developing story as it could have potential long-term consequences as the US has also threatened Russia with sanctions (they don’t seem to be fazed at all by Washington’s threats).
This week, the equity markets fell as confusion and concerns of post-Olympic wars between a few countries inch closer. Russia was reported to have changed their mind on invading Ukraine, only for that news to switch to them adding troops at the border. China invading Taiwan post-Olympics is also a possibility as that has seemed to be forgotten as the Russia news took over the market. Earnings season has been mixed with losers and winners in all sectors as inflation has begun to show up more in guidance for the year ahead.
Tune in as biotech guru Dr. Channa S. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between.
Why producing crop plants with a much gentler footprint on the natural resources will help feed the growing population. How 75% of the world’s patents in agriculture gene editing are coming from China. Understanding that trying to impose restrictions on our ability to grow food can be a considerable risk to agriculture. Listen to hear about these topics and more!
Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].
As of 2022, there are 7.9 billion people in the world, which is anticipated to hit 10 billion by 2050
Did you know that by 2050, the world is expected to feed almost 2 billion more people than we do today? As the global population continuously rises, a significant amount of food will need to be produced over the next 30 years.
But before you get to overwhelmed with that thought, it’s imperative to know that the need for more production creates opportunities. In fact, in 2020 alone, 19.7 million jobs were related to the agriculture and food sectors. We cover these areas in this What It Takes To Feed the World infographic. So, let’s take a closer look into how each of these categories work together to help pave the way to feeding 25% more of the population over the next couple of years. Here’s everything you’ll need to know:
Download the Infographic
FINANCIAL INSTITUTIONS / INSURANCE
Due to inflation (we cover farm inflation here) and superior advancements in farming technology (seed, equipment, etc.), the cost of doing business is extraordinary.
As a result, banks and other financial institutions have become the pillar of the agriculture community. From financing farmers, purchase of seeds and chemicals to providing insurance to protect the farmers on through to commercial lending and trade finance programs; without banks, agriculture, as we know it today, does not exist. As a standalone example, consider that in the U.S. alone, during 2020, farm bank’ lending was $98.6 billion despite the global economic slowdown. As the demand to produce continues to grow, there is minimal question that the need for capital will grow along with it.
Source: Federal Deposit Insurance Corporation & American Bankers Association Analysis
SEED / CHEMICAL:
Before the farmers can get to work, they need seeds and, subsequently, fertilizers (watch our fertilizer forecast here) to reach the full potential of every acre of land. From the genetics to the production to the distribution companies, one could argue that continued innovation of this industry is vital to the future of agriculture.
In 2020, the commercial seed market alone reached an estimated $44.9 billion in annual revenue. With the global pressure on to produce, the world can no longer afford to have underperforming years of production, placing even more pressure on this sub-sector of agriculture to continue to develop treatments on both the organic and GMO sides (watch The Future of Feeding the World Podcast here).
Source: IHS Markit – @2021 IHS Markit
EQUIPMENT
With the growing demand for food-producing land due to the world’s growing population, advances in technology have seamlessly made the farming process more efficient, profitable, and undoubtfully safer. Modern farms and agriculture equipment have significantly evolved by incorporating sophisticated technologies like sensors and GPS to driverless equipment with new autonomous machinery.
These enhancements to heavy equipment are essential to farmers, allowing them to no longer apply certain things uniformly, like fertilizing or watering the field. But instead, farmers can use minimal effort to target specific areas of their fields. Let’s look at some of these added benefits due to technology:
Farmers have higher crop productivity.
There is a reduction in the overuse of water, fertilizer, and pesticides.
The price of food production is at a lower rate due to less manual labor.
Improves the safety of farmworkers and machine operators due by incorporating the use of drones and various software. Check out this podcast with Dr. Steve Irwin on technical platforms here.
Groundwater and rivers are experiencing less runoff of chemicals.
Undoubtedly, innovation of this business sector will continue to evolve and play a major role in the necessary production increases ahead.
GRAIN PRODUCERS
One hundred fifty years ago, work was hard for grain producers, but the job was simple – till the land, plant the seed and let mother nature do her job. As time passed and our global population grew and the demand for our arable land has grown exponentially; all of which, leads to the grain producers of today having the most important job in the world.
The work of the few is to feed the many. Since the post-WWII era, the number of farms has steadily been reducing, placing even greater pressure on those in production areas to continue managing their operations, focusing on profit margins, and working the inherently volatile world of commodity prices.
Imagine a 5,000-acre farm producing trendline yield corn of 180 bushels per acre. Quick raw math based on today’s price per bushel of $6.00 puts gross revenue at 5.4 Million dollars. Noting the rapidly rising costs of inputs (seed and chemical), labor and energy prices, a return to August 2020 prices of $3 would be a massive hit and likely take down such an operation.
All of this is to say that today’s job requires greater collaboration with others in the business than ever before (see section below on intermediaries and risk management).
INTERMEDIARIES/RISK MANAGEMENT
Commodity markets are highly unique in that both end-users and physical producers of a product can proactively buy and sell their input and or production in an open market before being produced via a forward contract or hedge.
To hedge is to manage risk and, in most cases, lock in or protect the profits margins. As discussed above, grain production is a highly volatile business, just like the purchase side (see end-users and commercials below).
Through intermediaries and risk management experts, farmers and end-users gain timely market information, access to markets, and ultimately execute the majority of their forward pricing. Whether through the use of futures, options, swaps, or even physical contracts developing and coordinating a risk management plan is essential to the long-term health of our global commodity infrastructure.
The CME Group is the world-leading commodity exchange, and their global branding says it best – “CME Group, where the world comes to manage risk.”
RCM Ag Services also falls into this category. We provide full-service risk management and advisory solutions to our local area producers and commercial agriculture operations around the globe.
TRANSPORTATION/LOGISTICS
COVID introduced unexpected stresses on global food systems, creating many immediate and rapid challenges to secure food availability. If a worldwide pandemic taught us anything, we know that supply chain management and transportation play a vital role within the agriculture industry. Agriculture logistics ensure that items like food, machinery, and livestock from all over the world are transported with a continuous, optimal flow from the manufacturers and suppliers to the producers and ultimately delivered to consumers.
Some of the most imperative agriculture supply chain and logistics management activities include production, acquisition, storage, handling, transportation, and distribution. Effective logistics is critical for guaranteeing customer satisfaction and meeting demands on time with high-quality products. In addition, logistics should also meet specific standards and operational objectives for efficiency in agriculture policies like:
Protection of the environment
Sustainable distribution practices
Food safety and security
Animal welfare (for transporting livestock)
With the growing population largely expected in developing countries, most of which have poor infrastructure, we can expect the need for massive investments into transportation and logistics operations in the years ahead (this is NOT a stock tip!).
COMMERCIAL AND END USERS
The penultimate step of the process is grain reaching a commercial elevator before going on to the end-user to be converted to a final product. Some producers deliver straight to the end-user in areas where that is an option.
Traditionally, commercial elevators accept farmers’ grain and then ship it to the end-user, either by rail, barge, or other means.
With the continued upward trends of production, it is no surprise, that grain storage capacity has consistently grown. In fact, it is on pace with increases in crop production over the last 20 years and by all accounts is likely to continue to grow.
Source: Farmdocdaily
Along with the enormous capacity, commercials and end users also carry a tremendous amount of of price / volatility risk requiring a proactive and disciplined risk management approach to maximize the margins of their operation and keep the system moving forward.
In 2018, $139.6 billion worth of American agricultural products were exported worldwide, with elevators playing a significant role in that process. The commercials and end-users are essential for getting the product from the farm into your home on the table.
FEEDING THE WORLD IN THE FUTURE
Bringing awareness to how the agriculture industry is vital to feeding the rapidly growing world is pivotal as we continue to face unprecedented challenges in global food security. However, there is a silver lining. We already know what must be done; it is figuring out how to do it that could be problematic. The world must unite and understand that each of these areas highlighted in the infographic is very complex, employs millions of people worldwide, and is vital to the growth of the agriculture industry as well as producing the necessary food for the future.
Download the Infographic
CONTACT AN AG SPECIALIST TODAY
Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact us today to speak with an ag specialist at 888-875-2110!
The USDA report was met with a mixed reaction on Wednesday as markets traded both higher and lower immediately following the report. Thursday brought on large selling though, as rain in the dryer parts of South America took the headlines after the USDA Report ultimately did not provide any major changes. The USDA did not change the U.S. yield for corn as it stayed at 177 BPA while raising total crop size to 15.115 billion bushels and 1.540 billion bushels for ending stocks. World stocks were lowered along with smaller yield numbers expected in South America. The rain will do little to alleviate the stress on the crop as more will be needed before we feel better about less yield loss. Several private estimates believe the Brazil and Argentinian losses are larger than the USDA updated. However, there is still plenty of time before the crop comes out of the ground to rebound.
Soybeans fell on the week for the same reasons as corn. The USDA Report was slightly more bearish for beans as they raised the U.S. yield 0.2 BPA to 51.4. They slightly increased total production and raised U.S. ending stocks by 10 million bushels to 350 million. A good amount was cut from World-ending stocks due to the issues in South America, but the market had already priced that in, if not more so than was reported. Exports were within expectations, so no surprises there. One wild card still out there is that China is $16 billion behind their Phase 1 trade agreement commitments. Obviously, not all of this is soybeans, but they are far off their soybean numbers. It is unlikely the Biden administration will press them to get to their commitments, but if South America’s troubles are worse than expected, they have to go buy them from somewhere.
The Dow fell slightly on the week but bounced back off its lows from Monday. The markets are looking for direction following 4 days of loses straight. With repositioning for the year ahead and profit taking after a historic year the volatility could be around for a while.
Wheat
Wheat has taken it on the chin the last couple of weeks as you can see in the chart below. Wheat sold off following the other markets after the report. The drought in the winter wheat belt is concerning and if it does not improve, we should see prices move higher in the next month or two. The drought is not a big problem right now, but if it continues into February, it would be concerning. This week saw the lowest close in KC Wheat since October.
The 2021 U.S. grain crop has the potential to be one of the largest on record. Where did all the yield come from, what areas were the hardest hit, and why on God’s green earth are grain prices still so high?
Today, we are joined by several RCM Ag Services grain markets experts from around the country to catch up on a post-harvest update and share an outlook for production and marketing in each of their respective regions for the remainder of the 2021 marketing season and the upcoming 22 crops.
The 2021 U.S. grain crop has the potential to be one of the largest on record. Where did all the yield come from, what areas were the hardest hit, and why on God’s green earth are grain prices still so high?
Today, we are joined by several RCM Ag Services grain markets experts from around the country to catch up on a post-harvest update and share an outlook for production and marketing in each of their respective regions for the remainder of the 2021 marketing season and the upcoming 22 crops.
Corn was struggling this week heading into the Nov 9th USDA report, where it saw a good bounce after its release before falling back to only finish up slightly higher on the day. The corn numbers that came out of the report were fairly neutral, with a 177 bu/acre yield and 15.062-billion-bushel U.S. production. The yield was slightly raised from 176.5 the month before but was right in line with estimates, so there was no significant reaction on that number. Overall, there were not many surprises for corn as most bullish reactions came from soybeans pulling them higher with them. With ethanol margins very profitable and crude oil staying higher, the demand side will continue to keep basis levels high. As harvest was 84% complete at the start of the week, there is still time for any weather issues to create issues to finish up harvest, but this is always expected, so being this far along is helpful.
Soybeans had an excellent bounce post USDA report but finished well off the highs of the day. The yield came in at 51.2 bu/acre, down 0.3 from last month, along with lower world-ending stocks. As far as U.S. ending stocks. the USDA pegged it at a manageable 340 million bushels, slightly up from last month —these numbers are not outright bullish. South America’s weather is non-threatening right now; however, with solid world crush margins, there is not much reason for a bearish outlook heading into the winter. With funds currently flat, we may hang around this area trading until new news enters the market.
There were no surprises in the wheat report,, but it did follow beans higher after a down week leading into the report. US wheat stocks came in at 583 million bushels (pre-report estimates were 581 million) and world-ending stocks of 275.80 million metric tons (pre-report estimates 276.5 MMT). Despite the recent pullback, there is still a bullish sentiment in the market moving forward for the time being.
The Dow has continued to trend higher this week as it has put together an impressive month despite Tuesday’s pullback. Many markets have led it higher from tech to industrials, with the new infrastructure bill playing a role.
Side note: The crypto markets have also been on a tear the past couple of weeks. It will be interesting to watch heading into the end of the year after an impressive last year and a half.
Podcast
For the past year, commodity prices have perpetually soared and continue to trend higher. We’re diving into the fertilizer forecast with a unique guest, Billy Dale Strader, a branch manager for Helena Agri-Enterprises in Russellville, KY., who is truly at the epicenter of the rising fertilizer prices.
Billy Dale planted his agriculture roots on his family-owned farm and has managed regional seed and chemical sales at Helena for the past decade. In this week’s pod, we tackle the big question for farmers and ultimately end-users — is the impact of higher-priced inputs, like seeds, chemicals, and fertilizer, on the supply and demand for the major U.S. crops? Listen or watch to find out!
U.S. Drought Monitor
The maps below show the U.S. drought monitor and the comparison to it from a week ago. The outlined areas in black are areas that the drought will have a dominant impact.
Corn took it on the chin upon the release of Thursday’s USDA report before bouncing back to finish only slightly lower on the day, but still up on the week. The report may have left more questions than answers hanging around as they raised ending stocks, but as we mentioned last week, the current basis and cash markets hint there may be less corn out there than the USDA believes. Corn stocks came in at 1.236 billion bushels, which was higher than the average estimate going in. Harvest was 18% done at the start of the week, and further progress will have been made with favorable harvest conditions. Exports this week were not great for corn, while beans were strong. The next major report for corn will be the October 12th yield update. With harvest getting off to a fast start, it will be interesting to see if the private estimates and USDA are closer to each other than usual this far in.
Soybeans fell post report as estimates were well lower than the USDA number of 256 million bushels. The average estimate was 174 million bushels which caused the immediate and lasting drop following the report. Obviously, nobody saw this number coming as it was well higher than the highest estimates. It is now time for the market to decide if they believe that number leading up to the October 12th yield report. Beans had great exports this week, but that was not enough to fend off the bears with the report. All the losses for beans on the week came from the report, as it had been pretty flat until Thursday. Soybeans harvested at 16% and will continue like corn this week. Like corn, the October 12th yield update will be critical as harvest has progressed further and we have a better idea of the crop.
Cotton has been on a great run the last two weeks as you can see in the chart below. Cotton busted through several technical indicators in the 97 cent range while also clearing the 99.47 high from January of 2012. China has started to inquire about purchasing cotton as many companies look to import cotton and no longer use cotton from Xinjiang. Ultimately this is a supply/demand driven rally from strong global demand and uncertainty about the crop until it is out of the ground. Forecasts for rains in West Texas this weekend are not helpful for the crop and could cause issues depending on how much it does rain. Even with further upside potential to the cotton price this is a good opportunity to set floors to take advantage of this run up. As always look at your production and make the informed decision that applies specifically to your operation and not a cookie cutter plan.
Note: Since the writing above, Cotton has now topped 105 with December 2021 Cotton touching 107.28 on what seems to be a made rush of continued buying…. hold on to your hats!
Wheat saw a post-report rally as all wheat stocks came in at 1.780 billion bushels, which was below the pre-report estimates. Keep an eye on Russia as the export tax on Russian wheat will cut acres from their regular planting and could play out in the US wheat market as well.
Dow Jones
The Dow struggled again this week as September proved to be the worst month for stocks since March 2020, when Covid hit. Rising treasuries and interest rate hikes in the future had some to do with it, but September historically is not a great month for performance. One bad month in the span of a year and a half should not ring the alarm, but it will remind everyone that stocks can go down.
Podcast
Check out our recent podcast where we’ve brought on one of our real-life firefighters from RCM Ag – Jody Lawrence, along with Tim Andriesen from the CME Group to provide us with some inside baseball knowledge of the current state of agriculture markets. They discuss the real-world application of short-dated options to potentially fight the recent blaze of volatility surrounding agriculture markets.
The maps below show the US drought monitor and the comparison to it from a week ago. The outlined areas in black are areas that the drought will have a dominant impact.
The USDA Acreage report was released this week and was bullish for corn. Planted acres came in @ 92.70 million acres, which was below the average estimate of 93.787 million. June 1st stocks were also slightly lower than estimates coming in at 4.112 billion bushels. For the second year in a row the USDA came out with less planted acres than pre-report estimates. There was also a note at the start of the report saying there are still 2.18 million acres intended to be planted during the survey time of May 29-June 17. This means that the 92.70 million number may end up being lower as odds are not all the 2.18 million acres got planted. This combined with the lower stocks gave corn a big boost as Dec’ 21 futures went limit up post report.
This is the last major market moving report (historically) of the summer, which means we are now in a weather market for the time being. The upper Midwest is still very dry and needs relief as you can see in the drought monitor chart at the bottom.
Soybeans, like corn, saw big gains following the release of the acreage report. Planted acres came in at 87.6 million acres, below the average estimate of 88.955 million. The June 1st stocks were also lower than estimates coming in at 767 million bushels, 20 million lower than the average estimate. Beans had a similar post report reaction to corn because the bullishness of the numbers were similar. With acres and stocks both being smaller than anticipated this will put pressure on the crop and weather during August will be very important for not only the crop but also the price.
Wheat had a neutral report but followed corn and soybeans higher after. Wheat looks to be forming a bottom on the charts but July weather is still critical for the plains/Canadian wheat crop. Wheat struggled lower on Thursday as they had their own trade and did not follow the lead of corn and soybeans. Weather this month will be important for the crop as we are also in a weather market for wheat too.
The Dow gained on the week as all major indexes had a good week as trade continues to be getting back to normal following the covid lockdown of the last year. The Dow closed out the month strong after seeing major weakness the first half of June.
Lumber
Lumber prices have continued their slide down and are back in the 700s after trading into the mid 1700s in early May. The pressure on the market looks to continue as the downturn has been sharp.
Podcast
Check out our recent podcast with Dr. Greg Willoughby: We’re talking with Greg in the new episode about being a “plant doctor”, weather patterns, GMO & organic produce, crop history, technical advances, level 201 education on agronomy, the agronomy equation, Helena Agri, soil biology, American v European agriculture, Greg’s early background in livestock, and the advancement of native plants to modern produce.
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