Most crop prices tumbled after the United States Department of Agriculture reported Aug. 11 much more corn and spring wheat than expected.
But market analysts say farmers shouldn’t worry that the good times are gone. This downturn is probably just a summer shower before a much brighter autumn.
“Our expectation is that at some point we see this market rally back again,” said Fargo, N.D., farm marketing adviser Mike Krueger.
“It’s probably a short-term problem more tied to fund liquidation in the Kansas City and Minneapolis markets than anything else.”
Read Also
Canola used in only quarter of Canadian biofuel
Less than one-quarter of the biodiesel and renewable diesel used in Canada in 2024 was made from canola oil feedstock
While the slump may be technical, it was triggered by a fundamental factor: the USDA found about six million more tonnes of corn than it projected in July and more wheat than most analysts expected.
The USDA now expects a corn crop of 278.8 million tonnes. It also expects an all-wheat crop of 49.03 million tonnes, down slightly from its July estimate of 49.14 million tonnes. Many analysts expected both the corn and wheat numbers to be substantially reduced by the hot, dry weather that struck the U.S. Midwest and Great Plains this summer.
Soybean production was reduced from the July estimate of 81.92 million tonnes to 79.68 million.
The market takes the August USDA numbers seriously because they are based on field visits by department officials, not secondhand reports.
The market reacted dramatically to the report, hammering down corn and wheat prices, and taking other commodities along for the ride. Analysts said the report worried traders because USDA crop size estimates tend to increase between the start of August and the end of harvest, so more downward pressure is possible as the crop heads towards harvest.
But analysts said farmers shouldn’t worry too much about the market reaction, which they attributed to a fund-driven exaggeration.
When the report’s bearish findings started pushing down prices, the commodity funds, which have held large long positions for more than a year, suddenly began cashing out.
When huge amounts of money begin swinging around the relatively small wheat markets, price reaction can be violent.
“The problem with big fund length and small markets like Kansas City and Minneapolis is it can push prices a lot lower than maybe they should be, and I think that’s what’s going on today,” said Krueger.
Canadian Wheat Board analyst Jason Newton said the wheat market was surprised by the modest decline in the USDA’s wheat number.
“They didn’t come down as much in hard red spring wheat production as maybe some were expecting,” said Newton.
And the increased projection for U.S. corn ending stocks for 2006-07, up by three million tonnes, was a shock.
“The expectation from most was that it would be growing, but that’s a bit more (than the trade expected),” said Newton.
But Ag Commodity Research analyst Randy Strychar said the most important numbers have changed little. World stocks of corn and other grains have declined from last year, with corn stocks likely to be only about half the level they were last year due to heavy ethanol production demand.
For Canadian oat growers, who saw their prices dragged lower by the bearish USDA corn number, the smart thing to do is sit and wait for better times. The exaggerated reaction to the corn number will probably reverse as harvest progresses, because corn stocks are so much lower than last year.
Oat prices could easily move up against corn by 20 to 30 cents per bushel in coming months, especially if the Canadian harvest is not as healthy as early reports peg it.
“We could gain on corn quite a bit. Fundamentally, we have just enough oats now,” said Strychar.
“I’m not worried that this is the start of a downtrend that’s going to stay there.
“I think a savvy grower will sell what he needs to and will sit on the rest.”
