June 2023 is ending with a bang as storms and high winds are reported across Illinois today, crushing crops and damaging farm buildings. As for the grain markets, this is a record market given the magnitude of the ups and downs for the month.
Where do we start?
December corn futures were down 27 cents for the month and 71.75 cents for the quarter. The shocking stat comes from the magnitude of the sell-off over the past seven sessions, which is a whopping $1.34 (21.3%) lower than the June 21 comparison. There was just one other sell-off in seven sessions, according to Reuters’ Karen Braun. The decrease over the last 30 years compared to the last seven years, namely in October 2008, is -24%. In 2008, the markets collapsed because of the collapse of the financial system and not because of weather or balance sheet influences.
soybeans? well
Looking at corn’s monthly and quarterly performance, in a typical year we would expect soybeans to perform similarly, but that’s just not the case. November soybean futures traded up $1.9675 for the month and 23.5 cents for the quarter.
In another incredible development, the new crop soybean to corn ratio was 2.33 acres at the time of settlement on the day of the Planting Intentions report in March and has risen to 2.72 acres following the updated June count.
Anecdotally, the June 2023 acreage report for corn and soybeans would have resulted in the biggest daily move in opposite directions I can recall: December corn was down 33.75 cents and November soybeans were down 77.5 cents on the day higher. Although old crop stocks were slightly favorable for both corn and soybeans, changes in acreage from March to June were the trigger for these strong moves in the opposite direction.
There has only been one other year in the last 40 years, 2007, when corn and soybean acreage has shifted as much from March to June as this year. In March, corn plantings were recorded at 91.996 million acres and soybeans at 87.505 million acres. While trade estimates saw very slight shifts to 91.853 and 87.673 million acres, respectively, the report suggested US producers will instead have 94.096 million acres of corn, a decade high, and 83.505 million acres of soybeans in 2023.
Effects on the corn balance
The additional 2.243 million acres of corn above trade expectations has a major impact on the balance sheet, allowing for a yield decrease from 181.5 bushels per acre in the June WASDE report to 176.8 bushels per acre, with no change in overall production. I expect the July WASDE report on 12th July to show a lower yield than June, possibly even below 176.8, but there is also reason to believe that demand could be adjusted lower again .
In fact, the better-than-expected corn acreage really puts a damper on the notion that a yield drop of 5+/- bushels per acre could become a near-term benign scenario. With next week being more likely to see rain, it would not be a surprise if the corn started out with lower yields next week only to hit a low, resulting in the July WASDE report showing a lower yield is expected. Should this come to fruition, consider using this move as an opportunity to market/hedge additional bushels around July 10-12.
Soybeans, on the other hand, lost four million hectares from the March report to June. The amazing thing here is that using the same demand numbers as in the June WASDE report and maintaining a trend yield of 52 bushels per acre, the carryout assumptions drop from 350 million bushels to 129 million bushels. With quarterly inventories slightly below expectations, it is also reasonable to expect opening inventories in July’s WASDE report to be slightly lower, which could carry over to pipeline levels of 120 million bushels. That’s not the scenario hoped for by those investing in additional shredders to power the renewable diesel initiative when their plants come online.
The only balancing quality for soybeans might be that between crops, soybeans have a much better chance of trending to above-trend yields in good weather in July and August. However, a bad August, or even the idea of it, could lead to significantly higher soybean values. It appears that the market’s role over the next few months will be to stimulate corn demand and discourage future acreage with lower prices. In the case of soybeans, the exact opposite is the case and demand must be rationed, while we can expect record acreage in Brazil this fall. Expect the corn base to be garbage in the fall and the soybean base to be red hot if nothing changes by harvest.
There are many ways to protect your disadvantages while still allowing yourself the flexibility to take advantage of rallies. For assistance, please feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.
The risk of loss when trading futures and/or options is significant and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the agricultural division of John Stewart and Associates (JSA) based in St. Joe, MO. All futures and options trading is cleared through ADMIS in Chicago, Illinois. This material was prepared by a representative of JSA or a third party and is, or has the character of, a solicitation. By accepting this notice, you agree that you are an experienced user of the futures markets and able to make independent trading decisions, and you agree that you will not and will not rely solely on this notice to make any trading decisions. Past performance, whether actual or indicated by simulated historical testing of strategies, is not indicative of future results. Commercial information and advice is based on information from 3approx Party sources believed to be reliable. We do not guarantee the accuracy or completeness of this information and should not be relied upon as such. Trading recommendations reflect our good judgment at any given time and are subject to change without notice. There is no guarantee that the advice we give will result in profitable business. The Services provided by JSA may not be available in all jurisdictions. It is possible that your country of residence prohibits us from opening and maintaining an account for you.
The author’s opinions do not necessarily coincide with those of Farm futures or farm progress.
Comments are closed.