The end of the month can usually bring some volatility to the markets, and August was no exception. Five of the eight months in 2023 so far have brought some notable selloffs in the marketplace. Corn prices have been eroding over the last several months. Sub-five dollar corn seems strange after high prices for so long, but they do say that high prices are the best cure for high prices. The weather is always something to keep an eye on but it becomes less relevant the closer we get to crop maturity. Crop condition ratings in both corn and beans didn’t decline as much last week as the trade initially expected, so the days of weather markets may be behind us for this season. The U.S. should have a larger crop than the last couple of years, so with ample supply and poor demand, it’s not a surprise that we are seeing prices continue to fall.
There are some reports of premature ear drop in the Western Corn Belt due to ongoing dryness, but only time will tell what this will do to yields. Crop ratings are still good overall, though concerns for what the final yields will be are still valid.
Open interest in the corn futures as of the end of August reached the lowest level since December of last year. Open interest is the total number of open futures contracts that have not been settled or closed. It increases when new buyers and sellers are entering into contracts, and decreases as they are settled. I’m afraid with the current supply and demand outlook, I don’t have much bullish news for corn. One thing to note, however, is that the bean/corn ratio hit a seven year high last week, which may give corn a reason to rebound a bit. This suggests that corn is undervalued and/or beans are overvalued.
India had their driest August in over 100 years. In fact, it was the driest since 1901 and rainfall was 36 percent below normal. India is the second largest grower of wheat in the world, so you would think that might be bullish news for wheat. The wheat futures tell a different story though, and are on a steep decline. This goes to show that there is a prevailing bearish tone to the wheat market. Argentina’s wheat areas got good rains, and Russia and Turkey are in talks for an alternate grain corridor, both bearish things in the wheat world. Though it seems counterintuitive, lower prices may actually be good news for wheat. The futures are getting hammered, but that may make them low enough to spark some global interest. World supplies of high protein wheat are declining, so demand may be picking up soon.
Prolonged droughts in several areas are also impacting logistics. Water levels are lower in areas like the Mississippi River and the Panama Canal, which have a huge impact on exports. Low water levels mean higher freight prices, which mean lower basis levels and less competitiveness in the export market. Low levels in the Panama Canal have a huge impact on shipments all over the world. Around 40 percent of U.S. container traffic moves through the Panama Canal. Over 30 ships per day go through the canal as it serves over 140 routes to more than 80 countries across the globe.
As you can probably tell from things I’ve said in the past, I find the geopolitical aspects of the trade very interesting. Something that may be of note is the new memberships in the BRICS alliance. The group, started in 2010, consists of Brazil, Russia, India, China, and South Africa. Last week, at the first in-person meeting since Russia invaded Ukraine, 2024 memberships forArgentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE were confirmed. This might be something big, and it might not, but to put things in perspective, the alliance now accounts for 40 percent of the world’s oil production, 53 percent of the world’s corn export supplies, and 31 percent of world wheat exports.