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Grain Market Recap

The fireworks from Wednesday’s WASDE report, and renewed speculation of the termination of the Black Sea grain deal on Thursday made for an exciting trade across the grain markets this week. For the first time in eleven years, USDA altered their yield estimates for new-crop corn, and elevated their estimates for new-crop soybean ending stocks. Meanwhile, dignitaries from the E.U. and China are scrambling to reach an agreement with Russia to renew the Black Sea grain deal before its termination on Monday. 

 

Corn: 

Early week price action in December corn futures mirrored traders’ sentiment ahead of the WASDE report - cautiously optimistic. Corn futures were incrementally higher both Monday and Tuesday, as traders expected USDA to slash their new-crop yield estimates to 176 bushels per acre. While traders were correct in USDA lowering new-crop yields for the first time since 2012, it was not as large of a reduction as initially expected. New-crop corn yields were reported at 177.5 bpa - down 4 bpa from last month’s initial estimate of 181. The reduction is significant, but with higher-than-expected acreage U.S. production was pegged 55 million bushels higher than last year at 15.32 billion bushels. The Dec corn contract sold off 12 ¾ cents within 5 minutes of the report, and settled 17 ¾ cents lower on the day. December corn actually recorded a new contract low in the evening session on Wednesday, trading down to 481 before ultimately moving higher through the remainder of the week. Reuters reported the speculation of the Black Sea deal’s termination before Thursday’s open, and corn bulls regained control of the market, and didn’t look back. Thursday’s trade wiped out almost all of Wednesday’s losses, settling 16 ¾ higher at 500-4. The bull run continued on Friday, and December corn closed the week at 513-6 - up 19 ¼ cents. Managed funds reduced their net-short position on the week to a net-short of 56,167 contracts. Broken down, that is 154,200 long positions and 210,367 short positions.

 

Soybeans:

November soybean futures moved steadily higher on Monday and Tuesday ahead of the WASDE report. The trade was not expecting any materially significant alterations to soybean yields or ending stocks, so the market was surprised when USDA reported new-crop ending stocks at 101 million bushels higher than initially expected. New-crop soybean stocks were reported at 300 mil bu, compared to pre-trade estimates of 199 million bushels, as a result of a 125 million bushel reduction to exports, and a 10 million bushel reduction in soybean crush. Unsurprisingly, soybeans settled Wednesday 32 ½ cents lower on Wednesday at 1327-6. Fundamentally speaking, the outlook for soybeans remains better supported than either corn or wheat. Total soybean production is estimated 210 million bushels lower than last year on notably lower harvested area. As such, November soybeans followed both corn and wheat higher through the balance of the week despite neither Ukraine nor Russia being major players in soybean production. Thursday’s soybean trade more than erased all of Wednesday’s losses, settling 42 cents higher to settle at 1369-6. For the week, November soybeans gained 53 cents to close at 1370-6. On the funds side, bulls remain in control as managed funds still hold a net-long position of 84,244 contracts. That is 124,246 long positions, and 40,002 short positions. 

 

Wheat: 

Price action on the September wheat contract this week was choppy to say the least. Wheat prices tend to be a follower rather than a leader when it comes to grain futures. As such, prices chopped higher on Tuesday in anticipation of the report, and followed corn and soybeans lower on Wednesday. In terms of the markets’ fundamentals, wheat is in the weakest position of any of the grains. So, when supplies were marginally increased 74 million bushels to 1,739 million bushels on additional harvest area and improved yields, wheat futures reacted. September wheat futures settled 27 ¾ cents lower at 632-6 on Wednesday. In the early morning trade on Thursday, wheat prices caught a bid when it was reported that Russia may not renew the Black Sea grain deal. Although wheat is typically a follower of corn and beans, the complex has by far the most to gain from a trade disruption in the Black Sea as Russia and Ukraine are the first and third largest wheat producers globally. Russian President, Vladimir Putin, made an appearance on Russian state television Wednesday evening stating that they will not continue the deal so long as the Russian Ag Bank, Rosselkhozbank, is not reconnected to SWIFT. The deal is set to expire on Monday, and if the deal is not renewed, it will be generally supportive of all wheat contracts. Speculative funds remain slightly pessimistic with a net-short position of 54,409 contracts (56,379 long positions and 110,788 short positions), but have substantially trimmed that position over the last 7 weeks. 

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