The weather forecast gave the grain markets some momentum on the open this week. That’s as the USDA July Grain Stocks report got a friendly read from the market on Friday after fresh signs of Chinese soybean demand gave grain markets a boost prior in the week.
But analysts say the underlying story for producers hasn’t changed. Questions surrounding final planted acreage, weather during the heart of the growing season and disciplined marketing decisions are likely to have a much bigger impact on prices in the weeks ahead. Still, weather is a market mover, and one that could continue to provide opportunities throughout July.
Chinese Soybean Buying Provides a Floor
China has recently returned to the U.S. soybean market with several sizable purchases. While the sales helped generate optimism, Jon Scheve of Scheve Grain says the impact should be viewed through the lens of the global soybean market, not just U.S. exports.
“I think it has to be factored in,” Scheve says. “The world only needs so many beans, and they’re either going to come from us or Brazil.”
Scheve says global demand doesn’t suddenly increase simply because China shifts where it sources soybeans. Instead, purchases tend to redistribute supplies between exporting countries. At the same time, he points to the strength of the domestic crush industry as another supportive factor for soybean prices.
“Because we crush so many beans, I think that’s just an absolute wonderful situation for us. It keeps at least a bit underneath the market and gives us upside potential moving forward here, at least that it isn’t getting much bigger yet,” Scheve adds.
Could China Return to the Corn Market?
While soybeans grabbed attention, questions also surfaced about whether China could soon begin buying more U.S. corn. Brian Grete of Commstock Investments says there was little evidence this week that any meaningful purchases actually occurred, but he believes the situation deserves close attention as Chinese domestic prices continue to strengthen.
“I don’t think it happened at any big scale, if it happened at all,” Grete says. “We will find out the weekly export sales report, but there were no daily confirmations. But I think for those that watch Chinese corn prices, they are now well above what the international level is, and typically, when you get into those types of periods, then you know Beijing might give the okay for importers to start buying and so we’ll see if that happens.”
Grete notes several economic indicators inside China are beginning to shift. He points out Chinese hog prices are on the rise along with Chinese soy meal prices are in the rise. And that’s why he says China could come into buy.
“So we could see a little bit greater period of Chinese demand based on their pricing structure right now,” says Grete.
Acreage Debate Isn’t Over Yet
Another issue continuing to dominate conversations is USDA’s June Acreage report. Last year, USDA made significant adjustments later in the season after incorporating additional Farm Service Agency data, leaving many producers wondering whether another revision could be coming this year.
Scheve says he has questioned USDA’s acreage estimates throughout the year because he believes planting economics favored soybeans over corn.
“Corn was never profitable going into planting season, and beans were. With so much financial stress across the farm community, it seemed there would be a switch back,” Scheve adds.
Scheve says he doesn’t believe USDA has enough reliable survey information to accurately estimate final acreage at this point. Instead, he expects the agency to wait until more certified acreage data becomes available before making meaningful changes.
“I think they’re going to do that same thing again this year,” he says. “I think they’re at least realizing that they don’t know everything from the surveys and that the surveys aren’t providing them enough information.”
Grete, however, cautions the market against assuming this year’s adjustments will resemble last year’s.
“I think the misnomer here is that everybody thinks we’ll see a repeat of what happened last year,” Grete says. “I’m not so sure.”
Grete says many traders forget that last year’s increase wasn’t driven solely by planted acres. Harvested acreage ultimately came in much larger than expected, which significantly increased production and added to available supplies.
“What gets lost is the harvested acreage number was so much greater. We harvested so much more corn for grain than what was intended, and that added a lot to that corn acreage increase,” Grete adds.
Weather Remains the Wild Card
As the calendar moves deeper into July, attention also turns to seasonal price trends. Historically, grain markets often establish an important direction during the first half of July, but Scheve says this year has already broken from several historical patterns.
“Seasonally, we should have rallied into June,” Scheve says.
Instead, corn futures peaked in early May before suffering one of the sharpest June declines on record. While weather forecasts have periodically hinted at production concerns, Scheve says timely rainfall has largely kept the crop in good shape.
“The crop’s probably still an average crop,” he says. “I think that can still weigh on this market some, but this report today was at least helpful to keep it from tanking right away.”
Still, crop conditions indicate the U.S. corn crop could be a good crop, but maybe not a record, but the crop is a long way form being in the bin.
Advice for Farmers and Their Marketing Plans
Even with uncertainty surrounding weather and acreage, both analysts say producers should remain disciplined with grain marketing plans. With many farmers still holding old-crop grain, they caution that rallies may be short-lived if large volumes of grain come to market all at once.
Scheve says for most of the Corn Belt, the window to capture stronger basis levels before harvest is beginning to close.
“Set the basis and move on. You don’t have to price the futures because there could still be a rally later this year if you’re not happy with them,” says Scheve.
He notes Ohio is one exception because local supplies remain tight after consecutive years of smaller crops. Even there, however, basis levels have already approached some of the strongest values seen over the past year.
Grete says producers should also remember that plenty of grain is still sitting on farms. USDA’s June 1 Stocks report showed 56% of corn inventories remained in on-farm storage, meaning future price rallies could quickly attract farmer selling.
“Have your price targets in place, execute on them when they’re hit and go about it diligently,” Grete says. “There’s going to be a lot of competition amongst other farmers on price rallies making sales.”
