Speculators drive grain prices lower

A leading analyst says grain prices should be bottoming out, but a recent supply and demand report did not help matters.

“We are already down to extremely cheap price levels on corn and beans,” said DTN lead analyst Todd Hultman.

“It’s just hard for me to imagine much more downside risk, but unfortunately I can’t guarantee that.”

The problem is that market speculators keep driving prices lower.

The total combined speculative position for corn, soybeans and Chicago wheat is 351,482 contracts net short, which remains near the record level set in April 2019.

“The specs in the market are already so heavily invested, how much more can you really push this market down?” said Hultman during a DTN webinar about the U.S. Department of Agriculture’s latest World Agricultural Supply and Demand Estimates (WASDE) report.

Prices have exceeded expectations to the downside, but the August WASDE didn’t help matters.

The USDA is now forecasting a record 4.59 billion bushel U.S. soybean crop, bumping up both its harvested acre and yield estimates from the July report.

Fortunately, domestic crush margins are still “extremely enticing” as crushers earn US$13.41 for the oil and meal they get from every bushel of soybeans, which is costing them $9.72.

New crop soybean exports are starting out in a hole with sales down 51 percent from a year ago early in the 2024-25 marketing campaign.

However, U.S. soybean prices for October in New Orleans are now 41 cents per bushel below Brazilian soybeans in Paranagua, so sales should start picking up.

November soybean futures were below $10 per bu. as of Aug. 12, the lowest level in almost four years. That is well below the estimated cost of production of $11.90 per bu.

“Historically speaking, this is a very cheap level,” said Hultman.

Prices are further below the cost of production than they were in 2018 when China had tariffs in place on U.S. soybeans.

However, speculators are still heavily short and may add more to that position after the USDA’s bearish report. Hultman said it is hard to imagine speculators changing their minds anytime soon due to the ideal August weather conditions.

The one thing that might move the market is the potential for a smaller-than-anticipated Brazilian soybean crop.

The USDA is forecasting a 2024-25 crop of 169 million tonnes, which would be a 10 per cent increase over last year.

However, Hultman has heard reports that farmers in that country might decrease acres when it comes time to plant in September due to the lacklustre prices.

The USDA is forecasting a record U.S. corn yield of 183.1 bu. per acre. Production is pegged at 15.15 billion bu., which is not a record, but it is a bin-buster.

Exports are forecast at 2.3 billion bu., up from last month’s 2.23 billion estimate.

“With these cheaper prices, they’re getting a little more optimistic about the export business,” he said.

Corn ending stocks are pegged at 2.07 billion bu., the largest in six years. Any time that number tops 2.0 billion bu. it is bearish.

The U.S. has already shipped out 1.96 billion bu. of corn as of Aug. 1, up 33 per cent from a year ago but slightly below the four-year average.

“It’s much easier to sell and export cheap corn that’s now below $4 than it was when it was $6.50,” said Hultman.

Ethanol margins are still very attractive with plants deriving $6.08 of value from selling ethanol, distillers grain and corn oil from every bushel of corn that is costing them $3.66.

He said speculators in the corn market have been encouraged to hold onto their short positions by the Federal Reserve Board, which is trying to keep prices in check by increasing interest rates.

“It’s obviously a very heavy weight on our grain prices,” said Hultman.

He is hoping grain markets have reached the end of the price pendulum.

December corn futures values are 19 per cent below the USDA’s estimated cost of production for the crop, which is reminiscent of 1985 when he got into the grain marketing business.

He thinks that is ridiculous because there were “mountains” of corn at that time and not nearly enough demand, a far worse situation than exists today.

“You would think we’re getting down to the lows here somewhere, but technically of course we’re not seeing any signs of that just yet,” said Hultman.

However, there are signs that the wheat market may be bottoming out. Kansas City wheat has made a few attempts to set new lows, but those attempts keep getting rejected.

“That seems to be some of the earliest indications of support,” he said.

The USDA’s new U.S. wheat production estimate is 1.98 billion bu., which is slightly lower than the July forecast.

The winter wheat crop appears to be getting bigger, while the spring wheat crop is shrinking due to production problems in Washington state, where it has been dry.

Global wheat ending stocks (excluding China) are forecast at 4.49 billion bu., the lowest in 17 years.

That is not a “dangerously tight” supply, but it should be providing some support to wheat prices.

Tags: corn, grain, prices, soybeans, ending stocks, wheat, crop, Market