USDA’s latest report didn’t make significant changes to the supply and demand balance sheets for corn and soybeans. Even with the projections for lower commodity prices this year, some analysts say there could still be a major bullish story brewing
—a risk that isn’t getting a lot of attention today.
There were three changes of note in the latest USDA report:
• A 25 million-bushel cut to ethanol demand
• A reduction of 4.5 million tons to Argentina’s soybean crop
• A cut to soybean crush
Even with the changes, Brian Basting of Advance Trading says it doesn’t affect the price projection picture in terms of volatility.
“Anytime you’re talking about some historically low carryout levels, not only domestically here in the U.S., but also looking at some world levels, we really have to look at the potential for volatility all the way through the U.S. growing season,” he says.
Read More: 3 Supply and Demand Takeaways from USDA’s February Report
The volatility was on full display Friday. Between Russia announcing plans to cut oil production, hot and dry weather in Argentina, as well as Russia’s escalation of the war in Ukraine, commodity prices shot higher.
Arlan Suderman of StoneX Group thinks the one possible bullish factor not getting much attention is what’s happening in the Black Sea region.
“We built quite a risk premium into commodity markets when Russia attacked Ukraine last February,” he says. “Virtually all of that risk premium has been taken out of these markets. And if anything, the risk is going up.”
Suderman says as the escalation unfolds, it’s adding more risk that the flow of commodities out of the country will be severely reduced once again.
“Russia seems to be preparing for a spring offensive,” he adds. “We’re also seeing talk of not only tanks from the West going into Ukraine, but now fighter jets and longer range missiles. This thing is escalating and Russia, as a nuclear nation, they’ve said, ‘We have the tools to win the war. We’re not going to lose this.’ And I think the commodity markets need to need to recognize that risk.”
Read More: Global Grain Shuffle: Is The End Of U.S. Grain Export Dominance Near?
Even with the possibility of both upside potential and downside risk, Basting urges producers to defend their balance sheets, especially for any unsold 2022 bushels.
“It’s not too early to look ahead. These 2023 bushels, a lot of attractive pricing opportunities out there already for 2023. However, if we look at the balance sheet for 23/24, I know that’s getting ahead of ourselves a bit, but I think that the balance sheet could definitely be an increasing stock scenario. Obviously a lot of moving pieces between now and then, so I remind the viewers that today, these are some historically high prices for new crop. I strongly encourage them to consider that and look at some risk management strategies to get started if they haven’t already on 2023 pricing.”
