Shifting expectations about stocks and a large supply of money in the investment community add to market instability
Those tied to the agricultural commodity markets this June might have the feeling they are riding a roller coaster.
Last week’s Quarterly Grain Stocks and Acreage Reports from the U.S. Department of Agriculture would have put them staring into a very blue sky — one without any rain clouds, at least for the western regions.
“Keep your Dramamine at hand if that is your chosen tool for (market-induced) motion sickness,” said Arlan Suderman, chief commodities economist at Stone-X.
The USDA stocks report delivered the opposite of what the markets expected in many cases and that sent prices for corn, soybeans and wheat up, further showing how much weight weather has in the measure of this season’s commodities price balance.
American wheat stocks came in 14 million bushels lower than expected, at an estimated 845 million bu. That is 183 million bu. less than last year at this time.
Corn was 32 million lower than expected at 4.1 billion bushels, and that is 32 million bu. below what was expected, and 891 million bu. less than 2020’s inventory at the end of June.
Soybeans, too, were down, with 20 million bu. fewer than the trade was looking for, with 767 million bu. in inventory. That is 614 million bu. below last year and caused favourable conditions for everything related to vegetable oil, including canola.
Suderman said shifting pictures and expectations about crop inventories and a large supply of money in the investing community is adding to the instability in the markets.
“The margin for error in this market is near zero,” said Suderman.
The report showed feed demand has been better than expected. Soybean demand rationing is now a reality, creating more potential for canola prices. The livestock industry has been feeding wheat more than expected and corn must produce a near record yield to meet the market’s expectations for those supplies.
The USDA June 30 report sent December Chicago corn futures up the US 40-cent limit to US$5.88 per bu. The June 30 gains stuck through Monday, July 5, holding at $5.88. November soybeans went from $13.12 to $13.99 and also held fast.
Corn acreage was 1.1 million acres short of expectations, while soybeans were off 1.4 million acres.
Drought, northwest on a line from Wisconsin to Texas, is pulling down yield potential for all three major crops, causing even more instability said Suderman. Cooler, wetter conditions remain in the eastern regions.