In the spirit of St. Patrick’s Day this Friday, bullish grain traders and U.S. banking regulators are looking for rainbows, let alone a pot of gold, to help prop the markets back up.
While we’ll talk more deeply about financial markets later, U.S. interest rates were raised again this week, which supported the U.S. Dollar, and thereby pressured American grain futures (stronger U.S. Dollar = more expensive for international buyers).
Chicago SRW wheat futures fell below the psychologically – and technically – significant line of $7 USD/bushel this week, pressured by the stronger U.S. Dollar and corn’s weakness.
That said, corn futures aren’t that far away from its own psychologically – and technically – significant line in the sand of $6 USD/bushel, with more buzz at pre-Plant 2023 company meetings that a $5 handle for U.S. corn is more likely than unlikely in the 2023/24 crop year.
With the March WASDE printed last week, the complex had to reconcile Brazil’s big soybean crop, Australia’s bigger wheat harvest, and smaller exports out of America, which all pointed to the bears winning the week.
Fund and technical selling seemed to be the mode du jour last week, the last before the Black Sea Grain Corridor Deal’s expiry date of March 18.
I can’t believe I’m saying this, but maybe the Kremlin will pull out of the agreement and provide that pot of gold every bullish grain market analyst has been calling for the last few months?
Part of the reason for the weaker performance last week in grain markets was because the USDA, in their March WASDE, increased U.S. corn ending stocks as a result of lowering corn exports, something that’s expected, given how far behind the seasonal average they’ve been tracking these last few months.
Nonetheless, the corn bulls were a bit excited by the USDA lowering Argentina’s harvest by 7 MMT from last month to 40 MMT. This would make it 15 MMT in total crop reductions for Argentina’s corn harvest in the last four WASDE reports.
For soybeans, Argentina’s harvest was cut by 8 MMT to 33 MMT, a 16.5 MMT decline from just four months ago. Brazil’s output was stayed at 153 MMT, but their exports were raised by another 700,000 MT to a new record of 92.7 MMT.
Staying in the March WASDE report, there was some wheat balance sheet wizardry as 2020/21 ending stocks (yes, two crop years ago), was lowered by about 5 MMT. This was then pushed forward into 2021/22 ending stocks, but it was made up, however, in an updated Harvest 2023 estimate, as the USDA raised their global production by more than 5 MMT from the February WASDE.
Only Australia and Argentina were the major markets that saw their harvests get bigger, while China’s harvest was lowered by about 5 MMT, and their ending stocks by the same amount. The net-out was that, excluding China, global wheat carryout was raised by nearly 3 MMT.
For the wheat markets though, the biggest news came from Australia as ABARES (Australia’s USDA equivalent) said that the wheat crop was much larger than initially thought. Compared to their December estimate, the Australian wheat harvest was raised by nearly 2.5 MMT to a record, 39.2 MMT haul.
While Eastern Australia’s harvest was good (NOTE: this area usually competes with Canadian higher quality wheat exports, but this year was affected by harvest rains) South and Western Australia territories fared better and took off some big yields, up 69 per cent and 40 per cent from the 5-year average, respectively. The bigger Aussie wheat crop obviously translates to bigger wheat exports, which were also pegged by ABARES at a new record of just over 28.5 MMT, matching the USDA’s current estimate.
However, with the Mother Nature pendulum swinging from the last three years of La Nina back to El Nino, ABARES itself noted that they expect drier seasonal conditions ahead, albeit asterisked that Harvest 2023 “production will continue to be supported by good soil moisture and healthy water storage reserves.”
On the flip side, more rain and snow events are helping North American soil moisture conditions, although one has to wonder if it’s enough to help a winter wheat crop that entered dormancy with a record-poor crop rating?
The market’s sense is it will be, much like the FDIC believes that their actions this weekend will help build confidence in the financial markets.
Specifically, they are ensuring depositors at the shuttered Silicon Valley Bank in San Francisco and Signature Bank in New York City, including those above the $250,000 insurance limit, will have access to all their money today, Monday, March 13.
Conversely, the banks equity and bondholders will be wiped out, meaning the FDIC’s actions aren’t a bailout, and that some systemic risk is still on the table.
These 2008-type events shouldn’t be ignored though as, everything looks hunky-dory from a bigger-picture standpoint, but at the micro level, it’s far from being a pot of gold.
Brennan Turner,
Independent Grain Market Analyst
Alberta Wheat Commission