Grain Outlook Drought is fueling wide market swings

The following marketing analysis is for the week ending June 16.

CORN — What looks like a full-blown weather market took place this week as rain events were scattered; and, in most cases, not enough to solve dry conditions. The weekly drought monitor released on June 15 showed 57 percent of the U.S. corn areas under some level of drought. This was an increase of 12 percent week-on-week. Sixty-five percent of Illinois was experiencing drought. Conditions as of June 11 declined 3 percent to 61 percent good/excellent with Illinois conditions down 21 percent in the last two weeks.

Other events popping up were viewed as background noise. December corn in 2012 and 2013 have both been compared to this year’s December corn contract.

All three years have followed the same basic pattern until now. In 2012, the December corn began to soar on June 18 and topped out on Aug. 10. The 2013 December corn contract began to slide lower on June 19 into harvest with a few rallies along the way. Where does that leave the 2023 December contract? Only Mother Nature knows for sure, so buckle up boys; it’s going to be a bumpy ride!

Farmer selling picked up this week with the rally back to prices not seen since April. However, nearby basis levels have been slumping throughout the week as buyers moved bids to the September or December contract. The Buenos Aires Grain Exchange estimated Argentina’s corn harvest at 37 percent complete vs. 49 percent on average. They left their crop estimate at 36 million metric tons compared to the U.S. Department of Agriculture at 35 mmt. Conab updated Brazil’s corn production to 125.7 mmt vs. 125.5 mmt previously. USDA is at 130 mmt.

The weekly export sales report was in the middle of expectations for old crop at 10.8 million bushels. Total export commitments are 15 billion bushels and 35 percent behind last year. We need 12.4 million bushels of sales to hit the USDA target of 1.725 billion bushels. This number was the highest of the last seven weeks; but rather than celebrate the figure, it shows how poor the last two months› sales have been. New crop sales were a dismal 800,000 bushels — bringing commitments to 117.3 million bushels vs. 232.2 million bushels.

corn market were also at play in the soy complex. Adding to the positive tone in soybeans was the impact of the rally in soyoil. July soyoil has rallied over a dime in the last two weeks. It’s believed that a record amount of soyoil was used in May for biofuels. The Environmental Protection Agency is scheduled to release the biofuel mandates for 2023, 2024 and 2025 on June 21.

The May National Oilseed Processors Association Soybean crush report was friendly with a higher crush number than expected and a lower stocks figure. The crush was a record for May at 177.9 million bushels. Soyoil stocks were 1.872 billion pounds vs. the 1.942 billion pounds estimated.

The weekly ethanol report was mixed with lower production but also lower ethanol stocks. Ethanol production was down 18,000 barrels per day at 1 million bpd. Stocks were 700,000 barrels lower at 22.2 million barrels. Net margins were down 3 cents at 43 cents per gallon. Gasoline demand at 9.2 million bpd is up 2.4 percent from last year on a four-week average.

The Federal Reserve did as expected when they left interest rates unchanged this month. They did suggest they see two more small rate increases this year. China lowered its one-year rate by 10 basis points for the first cut since August 2022.

Outlook: Weather is the driver and the current outlook is dry. The Juneteenth holiday means the Monday night open could be wild. Check your risk tolerance and next selling points to be prepared for wild, sharp swings. History tells us that December corn usually takes out the January high, which was $6.11 per bushel this year. Just a couple of weeks ago, it looked like this year would be the outlier. Now that doesn’t seem like an impossibility. We came with 13 cents of that level this week.

Falling in love with positions isn’t a luxury we have. If the situation changes, you have to be prepared to make adjustments. There are tools available to help manage the risk. Pick the one that works best for your scenario — be it using open hedge orders, sell stops, options, flat pricing, etc. Good luck.

For the week, July corn surged 36 cents higher to $6.40.25, September was the leading gainer with 69.5 cents to $5.94, and December rallied 67 cents to $5.97.5 per bushel. Corn had a strong technical close this week with the September and December contracts closing above their 200-day moving averages.

SOYBEANS — The same factors working in the

Argentina’s soybean crop continues to shrink with the Rosario Grain Exchange cutting the production estimate by 1 mmt to 20.5 mmt vs. the USDA at 25 mmt. Their new estimate is 58 percent lower than where they started at the beginning of the growing season. This could be an opportunity for additional U.S. soyoil and meal exports. Conab updated Brazil’s soybean crop by .9 mmt to 155.7 mmt vs. USDA at 156 mmt.

With an increase of 12 percent to 51 percent of the U.S. area under drought stress, according to the weekly Drought Monitor, soybeans will respond to current weather forecasts. As of June 11, soybean conditions dropped 3 percent to 59 percent good/ excellent. Soybean planting was 96 percent complete, right on the average.

Weekly export sales were decent for old crop and poor for new crop. Old crop sales were 17.6 million bushels and lag last year by 14 percent. Total export commitments are nearly 1.9 billion bushels. We need 3.5 million bushels of sales per week to hit the USDA’s 2 billion bushel forecast. This was the largest old crop sales report in 13 weeks. New crop sales were 1.8 million bushels — bringing commitments to 116.3 million bushels compared to 481.5 million bushels last year by this date.

Outlook: Who wants to be the first to step in front of a moving train? With Mother Nature running the show, sellers mostly kept to the sidelines this week as managed money added to their length. Basis levels were under pressure for old crop throughout the Midwest. Weather, weather, weather will drive the market; but have some kind of plan in place if Mother Nature decides to grace us with rain.

For the week, July soybeans jumped 80 cents to $14.66.5, August surged $1.11.5 to $14.07.5, and November led with a $1.39 rally to $13.42.25 per bushel. July meal soared $19.20 to $416.40 and July soyoil was 5.1 cents higher at $.5969.

Weekly price changes in July wheat for the week ended June 12: Chicago wheat rallied 57.75 cents to $6.88, Kansas City was 44.25 cents higher at $8.42, and Minneapolis was up 41.75 cents at $8.53.5 per bushel. v