Traditionally May brings steady to lower prices for grain futures as the planters get rolling in the fields. This year may prove to be quite different as grain prices continue to trend higher due to dwindling domestic supplies.
Now that the U.S. Department of Agriculture has pegged the 2020-21 United States corn carryout down to 1.35 billion bushels, with a stocks-to-use ratio of 9.2%, the price outlook for corn futures remains steady to higher for the short term. That stocks-to-use ratio aspect is important. There have only been four crop years with a tighter stocks-to-use ratio within the past 20 years. Those crop years were: 2010-11, 2011-12, 2012-13 and 2013-14. And if you remember in those crop marketing years, the price of corn was extremely high and volatile with a $6 to $8 a bushel price range.
We sit in late April in a counter seasonal bull market, with July 2021 corn futures at the time of this writing at $6.32 a bushel. In late April, the corn futures market was able push through a $6 per bushel technical resistance on charts due to the fact that the second corn crop in Brazil is getting smaller. This is the “Safrhina” corn crop that would normally become available to the global marketplace in August, fulfilling a critical time gap for the world, as the bulk of the American crop is not harvested until October.
For the July contract, $6.50 will be short-term resistance. A price breakout higher than $6.50 points to $7. Looking ahead, the market is still unsure where planted acres for the 2021-22 crop year will end up. That data will not be released by the USDA until June 30. With as tight as ending stocks have now become, the market actually needs to buy some additional acres.
The current projected acres from the March 31 Prospective Plantings report are 91.1 million acres. Assuming demand stays constant, 91.1 million acres with a trend line yield of 180 bushels per acre only slightly increases ending stocks to 1.672 billion bushels for the 2021-22 crop year. If 92.3 million acres are planted with the trend line yield, ending stocks would increase to 1.876 billion bushels. In either scenario, there is no room for any production issues this summer. Any adverse weather issues this summer will point to a return of $8 corn futures.
Wheat has been the follower in the grain complex as the ending stocks story is not quite as friendly as corn and soybeans. That sentiment could be changing. As corn prices rally globally, wheat will likely become a substitute for feed rations. Here in the U.S., all wheat ending stocks are trending lower, now pegged at 852 million bushels, down from 1.028 billion bushels one year ago.
U.S. wheat exports have been on a steady increase over the past year as well with China picking up some of those purchases. Speaking of China, they actually grow nearly 25% of the world’s wheat. Everything the Chinese grow, they use domestically. What was interesting to the market was the fact that in late April, China bought nearly 500,000 tonnes of wheat from France demonstrating that its global appetite for grains spans the globe. China continues to replenish depleted reserves of all grain.
What specifically has my attention regarding wheat is spring wheat. If you have watched me on “Market to Market,” you know that I’ve been bullish to spring wheat since January. The soil in North Dakota is parched, which makes for challenging growing conditions going forward. Technically speaking, looking at continuous monthly charts of Minneapolis Wheat futures, prices finally traded above a decade-long down trending line in late April of 2021. A retest of $8 looks likely in the short term. A close above $8 due to any unforeseen weather issues this summer points to $11 as the potential target higher. This was the high from June 2011.
Still the leader in the grain complex, soybean futures jumped higher in April, gaining nearly $1 a bushel in just under a week. Ending stocks remain tight at 120 million bushels, with the stocks-to-use ratio tied at the second tightest in history. As of this writing, July soybean futures are trading near $15.16 a bushel. The next upside target is easily $16 for the old crop contracts. New crop prices continue to work higher also with November 2021 futures trading near $13.40 as of this writing.
The fight for acres continues for soybeans. Currently planted acres for the 2021-22 season are pegged at 87.6 million acres. This is not enough. Using 87.6 million acres, assuming demand stays constant, and penciling in a trend line yield, ending stocks actually would be reduced to 27 million bushels. If 90 million acres are planted with a trend line yield of 50.8 bushels per acre, ending stocks only increase from 120 million bushels to 147 million bushels. Just like corn, there is no room for any weather issues this summer.
Be ready. I have a feeling the price action and volatility potentially facing the market this summer will be similar to 2012. Add to it the fact that the funds now have the ability to hold or own even more contracts of grain will create even more dramatic price action. Do be mindful, when prices are higher and the outlook for grain prices is friendly, it makes it easier to be complacent with your grain marketing. Make sure you are monitoring the value in front of you daily.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at firstname.lastname@example.org.