Does This Week's Major Sell-Off Change the Impact of Next Week's Big Acreage Report?

After Thursday’s major sell-off in the commodities, corn and soybeans reversed a portion of those losses Friday. Wheat and cotton couldn’t find the same traction, both trading lower again on Friday.

Red was painted across the commodity board on Thursday. Natural gas saw the worst performance of the day, and corn was in fifth place in terms of biggest losses, just behind oats and lean hogs.

Tough day for commodities pic.twitter.com/OhtwB5V0my — Oliver - Blue Line Futures (@OliverSloup) June 23, 2022

What sparked the major sell-off? Joe Vaclavik of Standard Grain says a shift in the weather forecast and one model showing more rains during the first week of July was one thing. Even though the forecast showed little rain for the Eastern Corn Belt, he says the forecast pointed to more moisture in Iowa, Minnesota, Nebraska and the Dakotas.

The other major risk that sent commodity prices sharply lower Thursday was growing concerns about a recession.

“There was a material shift in the forecast, and the other thing that's out there that is top of mind for me, maybe even more importantly than weather, is recession risk,” Vaclavik says. “Commodity markets don't like recessions, and it appears as if we're headed towards a recession. And I think that that's a big factor that has had an influence on large speculators and the way that they behave in the markets.”

Recession concerns, along with signs of slowing demand, are also to blame for cotton prices taking a sharp tumble this week. July cotton fell 30% in 24 hours.

Typically, July is the time corn prices can see some extreme market volatility from changing weather forecasts. Soybeans are subject to more of that price volatility in August. Mike North of EverAg says whether you are a grain buyer or a grain seller, this week’s price action doesn’t guarantee commodity prices will stay at these levels.  

“Well, this is always a very volatile time of the year,” says North. “Don’t just put all our cards on the table, we can literally turn a market in a moment. And it and it can flip on a forecast. Those forecasts change regularly through the course of the day. And we can, as we've observed in previous years, see the markets flip on a changing forecast.”

Two Major Reports Next Week 

North says the markets are also moving toward month end when USDA will release two major reports: the June Acreage Report and June Quarterly Grain Stock Report.

“We have traders that have blown out and dropped positions over the course of the last month that have now some material room to add back into some length,” he adds. “To Joe's point, this recessionary discussion has taken a grip on the market, that too can be equally a fickle discussion, as we're kind of feeling our way through it. So, so this is a this is a time of the year when you look for things to be volatile, it's normal to see markets move. And I think with the big downplay that we've seen in price, it kind of opens the door for some upside as we go forward, even if it's short-term.”

Leading into the June acreage report release, which is less than a week away, analysts are coming out with pre-report predictions and surveys. Vaclavik says he doesn’t take much stock in those early report predictions.

“Everybody's going be wrong on June 30, as they always are,” says Vaclavik. “This is a report that's highly unpredictable. I think that this year in particular, there was probably a big shift versus March intentions. We know that that March report is horribly inaccurate. Generally, speaking, the survey responses are terrible. I think there was probably some acreage shifted in different areas for different reasons.”

Vaclavik says the biggest issue is one that was widely publicized this spring. The wet weather in North Dakota, South Dakota and Minnesota pushed spring planting back, with some areas not able to even start planting until late May.

“In other areas, you could see increased corn acreage versus intentions because of prices,” says Vaclavik. “I think there are a ton of variables. I think there is an enormous potential for a surprise whether that's bullish, bearish, sideways, up or down, I have no idea. But I think we'll be surprised in some way shape or form. It's a big report.”

Bullish or Bearish? 

What could be the biggest surprise and spark the most bullish or bearish reaction? North says there’s a lot of talk heading into the report about a shift of 1 million acres from corn to beans, but North says that’s not a guarantee as the situation varied greatly by region this year.

“I agree with Joe, people are going to be wrong in some capacity. Whether we add more beans or add more corn remains to be seen, but I think all the way around, you've got a set up right now that allows for the surprise to maybe favor corn a little bit,” says North. “Bottom line is we've been talking about this big departure away from corn, and so that number is going to be watched really closely.”

North says USDA Grain Stocks report could be the bigger shock to the market next week.

“Given all of the tug of war, if you will, across the major demand fronts, there's room for a lot of shuffling as we've looked at $8 corn with regard to corn utilization and feed that number could be a little bit of a shocker,” says North.