This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
The grain and oilseed market rally took a well-deserved break on Thursday. Despite the setback on Thursday, we are on pace for a very solid weekly close in corn and beans. Wheat finished the trading session Thursday up more than 30 cents on the week. The rally in wheat is helping pull corn with it.
The spark in wheat came from the Ukraine-Russia war. When Russia invaded Ukraine, wheat rallied sharply to double digits but sold off back to prewar levels within a few weeks despite the ongoing conflict. The reason the war risk premium was taken out so quickly is that both sides refrained from hitting much grain infrastructure or shipping. They both had incentives to continue the grain trade to keep earning hard currency. Now Ukraine has started hitting Russian oil assets deep within Russia and also energy shipments coming out of Russia. It has damaged refinery capacity so much that Russia has had to import diesel for domestic use. The threats to shipments on the water have closed key waterways and stopped some grain shipments. In response, Russia has retaliated by attacking Ukrainian grain assets. Due to the new threats, the market is pricing in more premium. With wheat rallying and the corn-wheat spread already historically wide, it is pulling corn with it and giving some momentum to the bulls. Keep in mind, as we have learned through all these conflicts, that trend can quickly reverse if shipment routes are restored. But it is likely to remain volatile if things continue to escalate. New-crop wheat is over $7, which historically is not a bad place to start.
Soybeans got some strength this week from the NOPA crush report for June. U.S. soybean crush was reported much higher than what the market was expecting. The icing on the cake, though, was soybean oil stocks much lower than expectations. So not only are we crushing more soybeans than ever before, but we are also using the oil up, not filling up storage. There were also more rumors of Chinese purchases. In order to continue to trade at $12-plus, we need to see continued Chinese activity.
I have been saying the market would be focused on weather, but I have not even mentioned it yet. The weather has not been the main driver, as it has been just more of the same. The long-term forecasts tend to look less threatening, but skill scores remain low, as does confidence. The areas with extreme heat have lost some yield, but that could be made up by better areas. There’s nothing in the weather right now to drive the market with all the geopolitical headlines to trade. That could change if there is a threat.