Here’s what to watch following recent market correction

Most equity and commodity markets sold off last week, spooked by increasing worries about rising global COVID-19 infections and political uncertainty in the United States.

After an excellent run up through the summer, traders decided to take profits and reduce risk exposure.

In agricultural markets, the focus shifted from the strong weekly American export sales and toward the start of corn and soybean harvest, a period when grain prices traditionally weaken.

Rallies need constant feeding of news to keep them going and the narrative last week, while not necessarily bad, was not enough to offset traders’ worries that markets had risen too far, too fast.

Rising COVID infection rates in many parts of Europe had authorities re-imposing restrictions that had been lifted during the summer. However, so far restrictions are more regionally focused rather than whole country shutdowns.

Infection rates in the U.S. remain stubbornly high.

Economic recovery was clouded as Congress failed to agree on further aid for workers and businesses disrupted by the pandemic.

And there were worries that the logistics of the November presidential election, complicated by COVID safety precautions such as an increase in balloting by mail, could delay voting results and set off additional social unrest in a deeply divided country.

But against that backdrop, the fundamentals of the grain market were pretty much the same as the week before, back when prices were rising.

And they remain a lot better than just three months ago when the grain market outlook was for severe oversupply and dismal prices.

Looking ahead, here are key questions hanging over crop markets.

  • As harvest in the U.S. progresses, will yields confirm that the August drought took a toll or did crops survive the stress better than expected?
  • Will China continue to rack up strong purchases of American soybeans and corn or was the hot pace of buying tied to a desire to build a cushion of stocks, leading to a slower pace later in the crop year?
  • Will the La Nina weather system cause a drought in South America that severely disrupts the planting season or will there be enough rain to get the crop in the ground?

On this last point, the Buenos Aries Grain Exchange on Sept. 23 issued a pessimistic pre-seeding forecast for 2020-21.

The outlook is very early, but it estimated a soybean crop of 46.5 million tonnes and a corn crop of 47 million tonnes.

That is considerably less than the current U.S. Department of Agriculture forecast for Argentina for 53.5 million tonnes of soybeans and 50 million tonnes of corn.

The exchange based its pessimistic forecast on the likelihood of dry weather from the La Nina and for investment disincentives caused by the central bank’s recently announced capital controls as well as export tariffs in place for this year’s crop.

The dry weather already hurt the wheat crop that will be harvested in December.

The exchange sees a crop of only 17.5 million tonnes, down two million from the current USDA forecast. But that pessimistic view was also tempered by a forecast for rain on Sept. 25-26.

News of a smaller wheat crop in Argentina had little impact on world prices because estimates for Russia’s wheat are rising.

The USDA’s estimate is 78 million tonnes but Russian forecasters see 80-82 million based on better than expected yields.

Andrey Sizov of consultancy SovEcon recently tweeted his expectation that Russia’s September wheat exports could reach an all-time high.

Regarding my recommendation to monitor China’s grain imports, media reports continue to conflict over the health of the corn crop there.

Government officials appeared at a news conference last week to say that current high corn prices are the result of hoarding and speculation and that the harvest will set a new record.

But a reporter with the South China Morning Post touring a large part of Heilongjiang province, the largest corn grower in the country accounting for 15 percent of national production, found extensive damage caused by three recent typhoons. Neighbouring Jilin province was also said to have significant crop damage.

There is a lot of distrust about anything that Beijing says these days so we continue to watch actual export sales numbers.

In the week to Sept. 17, U.S. export corn sales were 2.14 million tonnes, well ahead of the trade’s expectation for 1.05 to 1.8 million tonnes. Of that, China sales accounted for 566,000 tonnes

Soybean sales were 3.195 million tonnes with 1.9 million of that going to China.

Soy and corn sales for the week combined were the largest ever one week total and a lot of it is destined for China.

Canada does not have an export sales reporting system. We have only weekly reports on amounts actually exported and we don’t know the destinations until the monthly Statistics Canada reports, and that lags behind by about two months.

But at least volumes look great. Thanks to the excellent harvest weather and the fact of a new export terminal at Vancouver, producer deliveries to Sept. 20 are at almost 9.7 million tonnes, up from just seven million tonnes last year and a little less than eight million the year before that.

Total grain exports in the Canadian Grain Commission report stand at 6.1 million tonnes, up from 5.1 million last year and about five million the year before.

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