The heavy lockdown in China and global recession concerns ::
The two significant difficulties affecting U.S. agriculture currently are the severe lockout in China and worries about the global economic downturn. The demand for American exports is already sluggish and well below expectations. If this pattern holds, the drop in exports will lead to rising U.S. stocks, which may be enough to drive down U.S. grain prices.
The start of the third week of September was mixed, with corn and soybeans increasing while wheat was on the back foot. Wheat increased throughout the week, while corn and soybeans fluctuated. By Friday, September 23, all grains were under technical selling pressure and profit-taking, which reduced the gains made by wheat for the week, decreased corn’s value to nearly flat and decreased soybeans’ value.
Dependability of Supply :
An intensification of the conflict between Russia and Ukraine benefited wheat. According to reports, Russia launched missiles at a nuclear power station in northern Ukraine, striking nearby buildings (no damage to the plant was reported). The decision by Russian President Vladimir Putin to hold a vote to annex the four regions of Ukraine that the Russian military controls, however, was a big piece of news. About 15% of Ukraine is made up of four regions. Putin reportedly stated that he would defend those areas with nuclear weapons if required if the vote to annex is approved.
The Federal Reserve raised interest rates by 0.75% during the third week of September, which was also major news. The market should not have been shocked by this, but it was. In their news conference following the announcement, the Fed also said that rates would continue to rise, with their target rate hovering around 4.5%, which is 1.5% higher than it is now. In 2022, the Fed will meet two more times, the first in the second week of December and the second in the first week of November. Expect rate increases from 0.5% to 0.75% at each meeting. The rate increase was sufficient to drive the U.S. dollar to levels last seen in June 2002.
With rates rising and the dollar’s value rising, one might anticipate that importing American goods would become more expensive. They are, but so is the merchandise of everyone else. More crucially, the stronger currency and slower export growth are insufficient to aid stock rebuilding. Increasing acreage and additional reductions in demand are required to rebuild supplies to safe levels. And getting this done will take some time.
Putin’s ongoing sabre-rattling is helping wheat prices. It seems that wheat production in Ukraine will suffer. This promotes wheat and encourages American farmers to plant more winter wheat. Argentina is still experiencing bad weather, and the country’s wheat crop is continuing to be abandoned due to hot, dry circumstances.
Technical selling, as well as hedging pressure, put corn and soybeans under pressure. Reports of low yields on the early-harvested crop provided only limited help. In addition, supplies of both maize and soybeans are low and will probably get even lower. The limited supplies will maintain a floor for the grains.
That does not imply that the grains won’t revert. Corn and soybean prices are projected to decline due to harvest pressure. However, the retracement shouldn’t be too substantial because a sharp price drop will promote consumption.
The fact that China is experiencing significant military activity within its borders is another subject worth monitoring. Some believe it is an effort to assist Russia in Ukraine, while others believe it may be a coup. Although a coup would be highly implausible, China’s citizens are beginning to express their worries over strict lockdowns.
Global Supply :
The two significant difficulties affecting U.S. agriculture currently are the severe lockout in China and worries about the global economic downturn. The demand for American exports is already sluggish and well below expectations. If this pattern holds, the drop in exports will lead to rising U.S. stocks, which may be enough to drive down U.S. grain prices.
The minor support levels reached when the grains were trading lower are still holding. At the beginning of the final week of September, this assisted in the grains’ upward movement. The Crop Progress report dated September 26 provided lukewarm support. According to the data, the spring wheat harvest is 96% complete, up 2% from the previous week and 1% behind average. Harvest progress in North Dakota is reportedly 93%, which is 3% behind average. The state’s northernmost region has most of the wheat that needs to be harvested.
According to estimates, the planting of winter wheat is 31% complete, up 10% from the previous week and 1% above average, but 2% behind schedule. Emergence is higher than usual at 9%.
92% of the corn in the country was in debt as of September 25 as opposed to 94% average, 58% was mature as opposed to 61% average, and 12% was harvested as opposed to 14% average (1% less than anticipated). As expected, the crop condition assessment for corn remained at 52% good/excellent. Only Illinois (-2%), Minnesota (-1%), and North Dakota (-5%) had a decline in ratings.
Comparing estimates of soybean leaf drop to the average, 63% were estimated. The harvest of soybeans was predicted to be 8% complete compared to 13% on average (3% less than anticipated). The crop condition rating for soybeans remained at 55% good/excellent, the same as it was for corn (which was expected). Illinois (-1%), Iowa (-1%), North Dakota (-6%), Ohio (-2%), and South Dakota (-2%) were among the states with dropping ratings.
The grains have also experienced a position settling ahead of the USDA’s Small Grains Summary and its estimate of the Quarterly Grain Stocks for September 30. (production estimate for the small grains). Corn stocks as of September 1 were estimated to be 1.512 billion bushels, up from 1.235 billion bushels the previous year, according to the Quarterly Grains Stocks.
Compared to 257 million bushels last year, the expected size of the soybean stockpile is 242 million bushels. 1.776 billion bushels of wheat are in storage, up from 1.774 billion bushels last year.
All wheat production is estimated to have decreased from 1.783 billion bushels last month to 1.778 billion bushels for the Small Grains Summary. All winter wheat is anticipated to be 1.189 billion bushels, down from 1.198 billion bushels last month. Production of other spring wheat is predicted to reach 514 million bushels, up from 512 million bushels last month. The expected monthly production of durum is 74 million bushels.
By Friday, September 23, however, traders had chosen a different course. Additionally, the risk-off session did not affect grains as the Dow fell below 30,000. The dollar has gained more than three-quarters of a cent since it started to decline.
The drastically increased dollar is now beginning to appear in other places. The pace of U.S. export sales last week was utterly disappointing, and the steep increase in the value of the U.S. dollar is to blame for the sharp decrease in export sales. It was unexpected to see a report from the IGC claiming that U.S. corn continues to be less expensive than corn from Brazil or Argentina.
According to the Drought Monitor map, the northern Plains and western Corn Belt continue to experience an extending drought. Montana, Nebraska, Kansas, Missouri, and to a lesser extent, Iowa were among the states that experienced notable increases in drought. Texas’s drought condition is getting better.
The risk-off selling pressure that began on September 23 continued throughout the final week of September, giving it a bad start. Fears of a global financial crisis and the belief that American demand would collapse if it occurred sent grains plunging into the red. Several markets reached thinly populated support levels.
The decline in exports will result in increasing U.S. stocks :
Due to concerns about a worldwide recession, other nations are following the U.S.’s lead. Along with the United States raising interest rates to combat excessive inflation, the Bank of Japan announced its first yen support since the 1990s. The United Kingdom just unveiled the most significant tax cut since 1972.
The third week of September saw losses for cattle, with most of the selling being attributed to the stock market’s poor performance and to position squaring before the USDA’s September Cattle on Feed report. The Cattle on Feed report for September was neutral to negative; the placements estimate, which exceeded expectations, was the only unfavourable figure.
That was not unexpected, given the Southern Plains’ current drought crisis and the scarcity of winter wheat pastures. Cash live cattle bids were high, and packer demand appeared to be high. Still, cattle were unable to outperform worries about the economy and the belief that domestic consumption would begin to drop as a result of declining disposable income.