War and weather market premiums are back in play, as Russian aggression and temperatures heat up

Before the ink could dry on an agreement to allow grain shipments out of Ukraine, Russia attacked the port of Odessa. And around the same time, forecasts called for hot, dry conditions for the northern Plains and western Corn Belt.

A row of soybeans
Soybeans and corn are generally behind in maturity, heading into a streak of hot weather.
Jenny Schlecht / Agweek file photo
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The grains traded in a back-and-forth fashion for the first four sessions of the third week of July, virtually holding steady as the market headed into the close of business on Thursday, July 21. It was looking like the grains would see wheat end the week with gains while corn and soybeans would close in the red due to favorable weather.

That thought was quickly disproved with the announcement from the office of Turkey’s president. The announcement was that Russia, Turkey, and the UN, along with Ukraine, had come to a parallel agreement on resuming exports out of Ukraine.

The idea that exports would resume out of Ukraine sent the wheat market in a tailspin pushing Minneapolis to within reach of recent lows while pushing the winter wheat exchanges to new recent lows. Corn will also be affected by this but to a lesser degree than wheat.

The week ended with the grains in trouble as far as the technical picture was concerned. The fundamental picture is not as negative, but when the funds have it in their minds to exit, they exit. And seasonally this is when the funds take their money and find a new sand box to play in.


But as we say about the weather, wait a minute, it will change. And sure enough, the situation changed over the weekend. Before the ink could dry on the agreement, Russia attacked the port of Odessa. No damage was reported to any load out facilities, but the fact that the ink still hadn’t dried yet on the paper and Russia was already breaking the terms doesn’t give a lot of hope the agreement will be honored. That was followed up by Russia firing missiles at Odessa on Monday, July 25, as well as another major port facility. This has brought a lot of doubt about any grain being shipped.

The last week of July’s weather added pressure to the market as it was as close to ideal as you can get. Temps moderated after delivering rains to the northern regions of the Corn Belt last week. Rains were expected to bless the southern regions of the Corn Belt.

But the six-to-10-day forecast is showing a warmup is on the way. Temps are expected to be sharply above normal in the northern Plains and western Corn Belt while the southern Plains and eastern Corn Belt see much above normal temps. Precip is expected to be below normal in the northern Pains and much below normal for the western Corn Belt. The eastern Corn Belt is expected to see normal to above normal precip. The eight-to-14-day forecast heats up and dries out.

This forecast carried a little more concern to the market especially after seeing the last weekly Crop Progress report, which surprisingly showed much lower than expected crop rating for the U.S. crop.

The Crop Progress report estimated corn in silk at 62% versus 70% average. Thirteen percent of the nation’s corn crop is in the dough stage versus 15% average. Corn’s crop condition rating dropped 3% to 61% good/excellent, 2% less than expected. The "I" states did not see much change but the fringe states did. The big losers were Minnesota which saw conditions drop 5%, Nebraska was down 7%, and South Dakota was down 3%. North Dakota dropped 1%. Ohio was the big winner as conditions improved 6%.

As of Sunday, 64% of the nation’s soybeans were in bloom versus 69% average. Twenty-six percent of the nation’s soybeans are setting pods versus 34% average. And like corn, soybeans’ crop condition rating dropped 2% to 59% good/excellent, 1% less than expected. The states that saw declining ratings were Nebraska down 6%, South Dakota down 4%, Iowa down 3%, and North Dakota down 1%. The states that saw improvements were limited as only Indiana (+2%) and Ohio (+6%) saw decent improvement.

Winter wheat harvest continues to lag behind expectations. Harvest is at 77% complete versus 80% average. This was 5% below expectations.

Spring wheat is slowly catching up as 86% of the crop is headed versus 96% average. Spring wheat ratings dropped 3% to 68% good/excellent. The only state that improved was Minnesota with 1% improved. The rest of the states posted bigger than expected declines. Idaho dropped 2%, Montana dropped 7%, North Dakota was down 2%, as was South Dakota, and Washington dropped 1%. Spring wheat’s rating was 3% below expectations


The report clearly shows the northern Plains and western Corn Belt are the main regions of concern moving forward. And that is the area that, as of now, will see the most intense heat in the long-term weather forecasts.

The friendly news to start the last week of July (Russia firing missiles at Ukraine ports and lower than expected crop ratings) helped the grains gap higher the first two sessions of the week. And with the current weather forecasts, traders are expecting crop condition to decline the next few weeks and the funds seem to be more willing buyers as they try and put war premium back into the market. The grains had erased all of the gains since the start of the Ukraine war on the expectations that exports will soon be flowing out of the Black Sea. But the past two days of Russian missile attacks on two different ports, many think that it is unlikely much grain will flow out of those ports.

French officials are expecting their wheat production to decline close to 6% from previous estimates due to the recent heat wave. Europe has been experiencing record setting temps this summer. This has resulted in most analysts to start reducing production estimates out of the EU. The extreme heat was the reason the IGC lowered total world grain production 3 million metric tons to 2.55 billion metric tons. This is the first production cut the IGC has made in five years.

Drought concerns are starting to resurface in the U.S. as well. The Drought Monitor Map from July 21 showed the drought slowly advancing to the east, with increases in Minnesota, Missouri and Iowa. But the eastern Corn Belt showed improvement, which drops in drought conditions in Indiana, Ohio and Illinois.

The last week of July also brought the Wheat Quality Council Tour to the northern Plains. The first day of the tour found a much better than expected wheat crop. Final numbers for the tour were released past deadline for this column.

The Federal Reserve also held their regular meeting the last week of July. The concerns about the meeting were not whether the Fed was going to increase rates, it how much were they going to increase the rate. In the end, the Fed played it safe and only increased rates 0.75%, which should be absorbed by the market without much issue.

Cattle closed out the third week of July in super shape. Live cattle were able to tack on $2.50 to $3.50 while the feeder cattle gained close to $5 for the week. This was enough to push the feeder cattle market back up against new contract highs and to very attractive hedge able levels once again. Most of the strength was tied to position squaring ahead of what was expected to be two friendly USDA reports, the July Cattle on Feed report, and Semi-Annual Cattle Inventory report. The Cattle on Feed report was negative as both the on feed estimate and marketing was in line with estimates, but the placements was larger than expected. The Cattle Inventory report continued to show herd reduction, but not at the rate the trade was expecting.

Mix the negative cattle reports with economic uncertainty (increasing interest rates) and feeder cattle contracts at or near contract highs and you have a good reason to hedge this spring's calves.


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