In my April 5, Barchart Q1 article on grain prices, I concluded:
As the grains and oilseed futures market moves into Q2 2024, northern hemisphere farmers are planting the crops that will grow into the agricultural products that feed and power the world. While the trends remain bearish in early April, the weather across the fertile northern hemisphere plains will determine the path of least resistance of prices.
The ongoing war in Europe’s breadbasket will continue to be a significant factor for worldwide supplies and prices. Growing regions in Russia and Ukraine remain battlefields, and the critical logistical Black Sea ports are still a warzone in early April. Prices have dropped to attractive levels, as geopolitics and the uncertainty of weather conditions could mean the downsides are limited, and there is plenty of room for price recoveries in Q2.
Nearby soybean, corn, and CBOT wheat futures moved lower in 2023, posting double-digit percentage declines. In Q1 2024, the selling continued to push the oilseed and grain prices lower. Halfway through Q2, prices are higher, and the weather during the growing season and geopolitical factors could cause the rallies to continue.
The May WASDE report provides guidance
On May 10, the USDA released its May World Agricultural Supply and Demand Estimates Report. The full text of the monthly missive is available through this link.
I reached out to Sal Gilberte, the founder of the Teucrium family of agricultural ETF products, including CORN, SOYB, and WEAT. Sal’s take on the May WASDE was:
The May WASDE report was much anticipated due to the inclusion of the 24/25 crop year projections, but initial new crop year projections are always nothing more than trend line assumptions, which generally provide little more than a baseline for markets later in the season. For right now, key takeaways to the May 2024 WASDE include the USDA finally revising South American corn and soybean production downward to more closely reflect private and official South American estimates, although many believe the USDA is still being too generous with Argentine corn production numbers. Global wheat consumption is still projected to exceed production, with the global wheat balance sheet continuing to tighten. Of note this month: both Russian and Ukrainian24/25 production, export, and inventory levels are reduced versus the current season, continuing an ominous trend for two of the world’s most important wheat exporters. Corn’s global balance sheet remains flat in spite of U.S. corn carryout levels of over 2 billion bushels for both the 23/24 and 24/25 seasons. Soybeans are the only loosening balance sheet of the major grains, which is good news given expected increases in soy based biofuel demand as the U.S. ramps up the need for soybeans as feedstock for a variety of new biofuel production facilities. Looking ahead, there are very large emerging discrepancies between the May WASDE and newly released official Chinese government estimates for China’s imports of wheat, soybeans and corn. China’s estimates are probably too low and are likely to be higher in actuality, especially if global grain prices decline from current levels. Weather markets will control the grain narrative from this point onward, but grain markets at this time are well supplied and there is no reason this early in the season to anticipate major production problems for any of the big grains.
While Sal’s takeaways mostly supported higher prices, he notes that the weather will be the ultimate factor for the 2024 crop and the path of least resistance for prices. Meanwhile, prices moved higher after the May WASDE report.
Soybeans rally from the Q1 closing level
July CBOT soybean prices closed Q1 at $12.0525 per bushel and were slightly higher in May.
As the daily chart highlights, soybeans for July delivery edged higher after the May WASDE report. The May WASDE increased the projections for U.S. and global inventories.
Corn moves higher
July CBOT corn futures closed Q1 at $4.5450 per bushel.
The daily chart shows the rally in corn since the end of Q1 and after the release of the May WASDE report, which increased U.S. stocks but said the global inventories would edge lower.
CBOT wheat leads the way on the upside
July CBOT soft red winter wheat futures closed Q1 at $5.7575 per bushel and have experienced the most significant price recovery.
The daily chart highlights the aggressive rally that took July CBOT wheat futures to nearly $7 per bushel level in May. The May WASDE told the wheat market projected 2024/2025 wheat inventories fell to the lowest level since 2015/2016.
Grains offer value at the current price levels
Corn and soybean prices exploded to the highest level since 2012 in 2022. Nearby CBOT corn futures reached $8.27 per bushel, only 16.75 cents lower than the 2012 record high of $8.4375. At below $5 per bushel, corn is significantly below the 2012 and 2022 peaks and could offer value at the current price level as the downside potential is likely less than the upside potential.
Nearby CBOT soybean futures reached $17.84 per bushel in June 2022, only 10.75 cents below the 2012 all-time peak. At under $12.50 per bushel, soybeans could also offer significant value.
Corn is the primary ingredient in U.S. ethanol production, while soybeans are a critical input in biodiesel refining. Aside from corn and soybean’s role in food, grain and oilseeds increasingly power the world.
Wheat is the primary ingredient in bread and reached a record $14.2525 high in 2022, eclipsing the previous 2008 $13.3450 record peak. At under $7, CBOT wheat futures remain less than half the level at the 2022 high. Meanwhile, Russia is the world’s top wheat-exporting country, with Ukraine fifth. The ongoing war in Europe’s breadbasket could impact production and exports, putting upside pressure on wheat prices in 2024 and 2025.
It is virtually impossible to pick tops or bottoms in any market, and agricultural commodities are no exception. However, at the current price levels, the corn, soybean, and wheat futures arena offer value with the possibility of limited downside risks and significant upside potentials. The most direct route for a risk position in corn, soybeans, and wheat is the CBOT futures and futures options contracts. The CORN, SOYB, and WEAT ETF products do an excellent job tracking a portfolio of actively traded corn, soybean, and CBOT wheat futures without owning the nearby contracts. They typically hold three contracts to minimize roll risks. Therefore, the ETFs tend to underperform the nearby contracts during rallies and outperform on downside corrections as the most speculative volatility tends to occur in the nearby contracts.
The weather across the fertile growing regions in the Northern Hemisphere will dictate the path of least resistance of the grain and oilseed prices over the coming days, weeks, and months as they will determine the 2024 crops. However, the war in Ukraine remains a clear and present danger to the sector as it could impact output, logistical export routes, and global trade. I continue to favor the upside and a continuation of the price recoveries in the corn, soybean, and wheat futures markets.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
