FBN^® Market News Update - Week Ending July 26, 2022

Grain markets have sagged this summer, first after planting fears evaporated in late May, and then further as the Grain Stocks report and the Acreage report anticipated larger still ending stocks of both corn and beans.

This expected expansion was ultimately unfounded though so far as the July update to the USDA’s Supply & Demand Estimates showed contractions in both CY23 and CY24 for both Corn and Beans instead of the expansion expected. Declines continued until last weekend added some regional heat and drought stress in early August for the western Corn Belt. Strong winds are forecast to be pulling warm winds from the Southwest up into the High plains bottling up smoke from fires in the PNW and Canada, corresponding with generally higher heat and drought anomalies from Aberdeen, SD down into the panhandle of Texas and east to Des Moines and Kansas City.

While this time of year the primary concern is soybeans, significant amounts of corn have yet to silk in SD and ND as at least some will be affected by this period that is forecast up into the 100s. This will also encompass most of the areas hard-hit by heavy storms in May and early June, causing late planting and significant replanting, subjecting those areas to risk with very late corn & beans. The anticipated heat stress has pulled Corn 16-18 higher since mid-July and Soybeans 44-48 higher since Last Thursday.

Wheat has continued to struggle with winter wheat prices near multi-year lows on plentiful availability in the US, despite a drought hindered crop in Russia and Ukraine, as Russia has continued to be aggressive in pricing their smaller crop. Most recently, Turkey guided that their import ban would likely be extended from late Sept. to mid Dec as Turkey is protecting farmers there amid a bountiful harvest. This has mostly made up for Russia’s production shortfall, causing prices to fall to within 12 cents of their low on Thursday. However, feed grains in Europe are tightening as both France and Germany had poor feed wheat crops on excessive rains, causing greatly diminished test weight and causing other quality concerns. Recently, private forecaster SovEcon lowered their estimates of the Russian, Ukrainian & Romanian corn crops amid continued heat and drought in their highest productivity growing regions.

Much of this grain usually goes to supply Europe. This will likely tighten availability from South America. This shortage could bring a little demand to the U.S. for quality wheat into Europe, but more importantly Asian demand for our Corn and Soybeans. Which brings us to China. The Economist released an important article on Tuesday pointing out that China is still expanding already large stockpiles of agricultural commodities, as well as oil and gas at times that they’ve been expensive (for energy at least). This increasing supply cushion gives China additional flexibility in a tariff war with the US if the next administration is more hawkish regarding China. As in the last tariff flare up, look for ags to be among the first to see new sanctions if conditions worsen.

Basis Update

The average spot corn basis across the grain belt increased 5.6 cents to -9.3U cents over the last month which is less than the 12.2 cent increase we have seen on average over the last 10 years. In the chart below the average, max and min take into account 10 years of history 2013-2023.

The strongest spot corn basis appreciation geographically was in Southern Minnesota, Eastern Nebraska and Kansas.

Average new crop corn basis has increased 2.1 cents to -39.9Z. The basis increase over the last month is stronger than the 10 year average which increases less than ¾ of a cent. In the chart below the average, max and min take into account 10 years of history 2013-2023.

The most consistent new crop corn basis strength by county was logged in Southern Minnesota, Western Iowa and along the Mississippi River up to Davenport, IA.

The average soybean basis for October delivery increased 1.4 cents over the last month to -63.3X compared to a decline of .3 cents on average over the last 10 years. New crop soybean basis is tracking the 10 year average very closely. In the chart below the average, max and min take into account 10 years of history 2013-2023.

The largest basis improvements on a county basis over the last 30 days happened in northern Iowa, southern North Dakota and Illinois. During this period Soybean Plants have shown relative weakness declining 1.66 cents while River markets increased .83 cents.

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