At NDSU’s Dickinson Research Extension Center field day in mid-July, Frayne Olson, NDSU Extension crop economist and marketing specialist, spelled out a short list of what is going on in the grain/energy markets.
Olson says drier conditions are showing up in Iowa, Nebraska, and northern Illinois, and that the corn and soybean markets are watching closely.
“The current extended forecast is for hot and dry conditions. For those folks that are reaching pollination and flowering for soybeans, it is a critical reproductive development stage for them,” he said.
Gas prices are high across the country, and Olson said that is not only impact people’s wallets, but the ethanol markets, as well.
“When fuel prices go higher, you don’t drive as many miles, meaning you don’t need as many gallons of ethanol,” he said.
Rail and ocean freight issues are continuing to pop up, according to Olson.
“It doesn’t have as much impact on the grain markets as it does on the oil and container business,” Olson said.
As both Ukraine and Russia begin to harvest winter wheat, Olson says the primary focus of the market is on what kind of production there will be in Ukraine this year.
“It is expected to be a 40-50 percent reduction in bushels per acre,” he said. “Russia is having a good grain year, but just because they grow it, that doesn’t mean they can they sell it. Some countries won’t buy Russian wheat.”
In addition, some countries that own ships don’t want to send them into a war zone to get grain. Insurance and freight rates are high.
France is having problems with grain production, but they will still have a crop, according to Olson. Italy is having drought problems, and Western Europe is having better weather conditions with France and Germany being the two biggest wheat producers in Europe.
China pork production
While it hasn’t received a lot of attention, China’s pork production is the primary reason the country buys soybean meal and imports U.S. corn.
“China’s growth rate isn’t the same as it was in the past, and pork production has stabilized versus growing at a 5 percent compounded rate,” Olson said. “Will this have an impact on whether the U.S. can sell corn and soybeans into China?”
Olson says Manitoba had a cool, wet spring, which led to some planting delays.
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“Their crop is behind, but it looks good. Eastern Alberta and Saskatchewan have been on the dry side, especially where durum is produced. They will have good quality because of dry conditions, but yields may be down,” Olson said.
Inflation and interest rates are having an impact psychologically on the markets, according to Olson.
“Recently, commodity grain prices have fallen,” he said.
How does inflation and interest rates impact exchange rates? What is the value of the U.S. dollar compared to the value of Japanese, Chinese, and European currency?
“These are all interconnected,” Olson said.
The 9.1 percent inflation rate in July was higher than the trade expected (8.6 percent). The consensus is that rates will increase by .75 percent. The question is: how fast can inflation rates gets reined in?
“That is a hotly debated topic. My opinion is that I think they will, but will it be fast enough?” he said.
There is a loose relationship between energy and grain prices, Olson says.
“There is a growing interest in renewable diesel. Those hedge fund managers, when they invest, they invest a portion in ag and a portion in energy. If energy goes up, they will buy ag, as well. It is the same when energy goes down, they sell ag at the same time,” Olson said.
Over the next couple of months, it is Olson’s opinion that we will be in a weather market.
“We are seeing the low of markets now,” he said. “Guys who are waiting for a rally to sell at better prices may get it, but it will be due to weather problems showing up in the Corn Belt. Nebraska has irrigation, but irrigators may not be able to keep up. Iowa is on the dry side, and so is Illinois. Weather will dominate other concerns.”
FSA official estimates on prevent plant acres won’t come in until late August.
“My best estimate is we will be looking at 2 million acres of prevent plant in North Dakota. In 2020, we had 3.2 million acres. The record was in 2011 at 5.3 million acres,” Olson said. “Even in a normal year, North Dakota has about 1 million acres of prevent plant acres.”
Prevent plant in North Dakota this year, according to Olson, hasn’t been as bad as folks were expecting.
“Most prevent plant acres will come from corn and soybeans. It looks like all the wheat got planted. Sunflower acres actually went up,” Olson said. “We need a nice fall to push this (harvest) to the end, but things look pretty good as I have driven around the state and looked at things this July.”
For the spring wheat market, Olson noted the commodity’s futures price reached $14 recently, but that price only lasted for one day.
“We got ahead of the market with wheat, and our prices went way too high,” he said. “We were the only country that did it, and it got corrected. It is not coming back. So you have to set the reset button on what you should sell your wheat for. For spring wheat, it is not going above $10 again. I would target spring wheat sales in the $10-11 cash range. It is $8.50 now.”