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New-crop corn, soybean contracts take leadership role

Talk of extra acres of corn has market asking, “from where?”

It was another stellar week for the grain and oilseed space, with the row crops pushing into new highs yet again and wheat following closely behind as they test their recent highs. The reasons for the rally have not changed; this long-term bull market is fully charged and the expected epic battle for acres is indeed becoming one for the ages.

Brazil’s second-season corn crop is in pollination with little relief from the drought across much of the region, and their production estimates are declining by the day. Demand that would normally flow to Brazil is quickly shifting to U.S. old crop, but supplies here are ultra tight, and we don’t see evidence that the demand for old-crop delivery is shifting to new crop. 

In fact, we are seeing a significant surge in new-crop demand while old-crop sales hold tight. Something has to give, but it hasn’t happened yet. We see little evidence of demand destruction, even with corn at nine-year highs and wheat and soybean prices at eight-year highs.

Just for this week, Kansas City wheat rallied 34¢, Minneapolis was up 33¢, and Chicago up 25¢. Corn surged 59¢ and soybeans were up 56¢.

The trade is talking about a shift in plantings to more corn than projected in the March Prospective Plantings report. That would explain the sudden emergence of bear spread activity even as prices set new multiyear highs. We see new-crop contracts take leadership in corn and soybeans, clearly indicating the desire of both of those markets to bring in more acres. 

But where are they going to get them? More corn means less beans, and vice-versa. Neither have comfortable enough old-crop stocks to give away acreage. Spring wheat acres are likely the most vulnerable as soybean plantings become more common across the Northern Plains, but drought there makes that a difficult decision.

That said, there are some rain systems moving across Montana and the Dakotas this weekend that will be a huge boost to topsoil moisture conditions and bring at least some temporary relief to bone-dry soils. The Canadian Prairies are not forecast to get much of that moisture.

Export sales for wheat last week were a disappointing 303 TMT, with 96 TMT net cancelled from old crop and 399 TMT sold of new crop. Sales have slowed considerably the last few weeks. Even though all world FOB offers have risen sharply, U.S. FOB offers are well above competing world offers. Year-to-date U.S. sales total 25.7 MMT, down 2% from last year. That contrasts with the first half of the marketing year when sales were well ahead of the previous year. 

Soybean sales have slowed as well with Brazil’s crop taking the lead. U.S. soybean sales last week were 358 TMT. Still, U.S. soybean sales stand well ahead of last year at 61.2 MMT, up 55% over last year. Corn sales, too, have slowed recently with last week at 243 TMT. Year-to-date sales are still way ahead of last year at 67.8 MMT year-to-date, up 81% over last year.

In other news, Russian farmers are reportedly planting more spring wheat acres, mostly on ground that had winterkill on their winter wheat in the central and Volga regions. Russian doesn’t normally export spring wheat and yields would be less than winter wheat, but it would help shore up total wheat supplies.

Looking ahead, until we see corn prices peak, it is unlikely that wheat prices will peak. That said, with winter wheat harvest starting in just a few weeks here in the U.S., wheat is the most vulnerable to price declines. Corn and beans will likely hold strong until we get past our own pollination, and that is still more than two months away.

Demand for feed grains is massive and wheat is being pulled into feed channels across the globe. All grain stocks are in very tight supply, and it is unlikely that one year will fix that problem. The market needs at least trendline yields this year just to keep pipeline supplies. Any hint of weather problems in a major producing region sends grain prices sharply higher yet again.

At this point, winter wheat in the Central Plains looks OK, and recent rains should shore up production. Northern Plains is still early, but drought conditions are well entrenched, and rains will need to be timely. Except for the key state of Iowa, the Midwest has plenty of moisture so at this point a weather market is not the focus – it is really about acres at this point.

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