Alex Norton, Beeson Inc.
Commodity markets have an interesting pattern to close the calendar year. Typically, markets have a lot of excitement and volatility prior to Thanksgiving. There is harvest wrapping up, South American market data to digest, and the beginning of the major export season. Then the holiday week typically has little movement as market participants are less engaged and focused on travel, family, and eating too much.
Arctic conditions across the U.S. brought record-cold temperatures and raised some important crop issues. Winter wheat that has been planted in the Central Plains was vulnerable to the cold as adequate snow protection was not in place. There were some initial concerns for the corn and soybean crops that have not yet been harvested, but those seem largely to have passed. But one big development with the extremely cold weather is the domestic sugar situation.
Many crops are done with harvest, but two big ones are still incomplete. Corn and soybean harvest in the U.S. have been delayed from the start but are now in the final weeks. The U.S. Department of Agriculture reports progress weekly, and showed that the soybean crop was 75% complete while corn is 52% complete. Both of these are lagging the normal pace. At this date, soybean harvest is usually about 80% done and corn is usually around 75% done. Things have sped up in the last week with weather conditions drying out.
Crops have had a tumultuous season in the U.S. this year. Starting with late planting of the corn and soybean crops, issues have continually come up that have shifted expectations for major crops.
Agricultural commodity markets tend to focus on the supply side during the growing and harvest seasons. It is only natural for traders to focus on the weather and production prospects that change week-by-week and day-by-day. Focus on demand tends to come after harvest when production is more known and the daily weather forecasts are less critical for supplies. And even though we are not past harvest of all crops and production of crops is far from known, we have to be aware of what is going on with demand to see forward trends for pricing based on expected ending stocks.
If markets could have a weekly theme, last week's would be "Deals." The week of Oct. 7 ended with an announcement of the first phase of a trade deal between the U.S. and China. The trade war has been intensifying for over a year, and the news was initially met with a rally in both the stock market and agricultural commodity market. Claims that China would be buying somewhere between $40 billion and $50 billion of U.S. agricultural products was quite bullish.
The Sept. 1 stocks data from the U.S. Department of Agriculture was surprisingly bullish for soybeans and corn. So Thursday's World Agriculture Supply & Demand Estimates Report had to adjust those balance sheets to reflect old crop supplies that were known since the end of last month. Despite that data, the market saw a less supportive corn balance sheet and soybeans were about as expected. For wheat, domestic stocks remain comfortable and the October WASDE held few surprises. In the end, corn prices led agricultural commodity markets lower following the WASDE Report's release.
Over the last couple of years, and the last couple of weeks especially, agriculture markets have been impacted more by outside, unusual, or macroeconomic factors than previously. Or at least the markets have been influenced by these factors more frequently than many have been used to. This column has gone over those drivers many times: trade war with China, biofuels mandate uncertainty, hundreds of tweets, attacks in the Middle East, etc.
Usually during this time of the season, attention is on harvest and late-season weather. The markets are trying to wrap their collective "mind" around supply levels for crops. But this year brought a variety of broader, macroeconomic drivers that have to be considered. The first was the attack on Saudi Arabia's oil refineries. About 5% of the world's crude oil production was taken offline as a result of the attack, sparking a major rally in the crude oil market.
On Thursday, the U.S. Department of Agriculture released its supply and demand forecasts in its monthly report. The World Agriculture Supply and Demand Report was being watched closely for data on corn and soybean production in the U.S.