Markets Today

What Impact Will the Fed's Rate Cut Have on Ag Markets?

Thu, 19 Sep 2024 14:57:58 GMT

The Federal Reserve cut interest rates by 50 basis points on Wednesday.

The cut was largely anticipated and so it was already priced into the financial and other markets according to Darren Frye with Water Street Advisory.

He says the markets are now looking forward to determine the additional cuts through the end of the year.

Frye says the move is positive for the agricultural markets because the change in monetary policy will weaken the U.S. dollar index.

That makes the United States more competitive with other export customers and should lead to additional business.

“A lower dollar means higher commodities,” he states.

Grains ended mixed and all the ag markets traded two-sided positioning ahead of the announcement.

Frye says the soybean market was supported by positive supply and demand factors, including disappointing early yields in the Eastern Corn Belt and an increase in export business, particularly to China.

Soybeans did see some early technical buying and managed to get above the 50 day moving average but could not hold that level into the close due to a pick up in harvest pressure and hedge selling.

However, Frye thinks the market will continue to move higher.

Corn ended flat on the day caught in a tug of war between lower wheat and the higher soybean futures.

Wheat saw pressure on profit taking after failing to take out chart resistance plus forecasted rains for the Southern Plains winter wheat areas.

Will Inflation Return in 2024 and What Does It Mean for the Grain Markets?

Wed, 10 Jan 2024 21:16:14 GMT

Speakers at the Water Street Solutions Edge Conference in Tucson, Ariz., say they expect inflation to return in 2024. Not only will it have an impact on the interest rate environment, but it could bring the fund or speculative community back in to buy commodities, which would be positive for the grain markets.

Inflation cooled in 2023 following a series of interest rate hikes by the Fed. However, Arlan Suderman, chief commodities economist for StoneX, says there are already economic signs inflation could rear its ugly head in 2024.

“With interest rates coming down, we’ve seen a resurgence in interest in buying houses once again at lower mortgage rates,” he says. “Those are two sticky areas of inflation that can bring it back.”

Despite the markets pricing in lower interest rates this year, he doesn’t expect the Fed will cut rates, at least in early 2024.

“I believe that means higher for longer from the Federal Reserve, but the Federal Reserve will start to lose its influence on interest rates this year, particularly the longer end of the yield curve, as we see what’s projected to be a 23% increase in debt certificates offered onto the Treasury market because of government spending,” Suderman says.

That means the Fed most likely won’t be able to use interest rate hikes to curb inflation. That could cause the funds to buy commodities as a hedge against inflation, after being in a deflation mode for the last 21 months and short in many markets such as corn and wheat.

Darren Frye, CEO, Water Street Solutions, says: “The Fed has a tendency once they come out of something they go the other way. I think we could have a catalyst to get them flat and then we’d see if there’s something optimistic enough to get them long. But we might find out we have another surge in inflation and that would be bullish to commodities if that happened.”

Suderman adds that could support grain prices. “That doesn’t necessarily mean we get a big rally in prices, bit it does make it easier for the market to respond to any type of a friendly story that comes along,” he explains.

This environment might also pressure the U.S. dollar index, which is friendly for ag exports and prices.

I-80 Harvest Tour: Widespread Drought in Minnesota Cuts Yields, But Corn Still Better Than Expected

Wed, 01 Nov 2023 22:01:02 GMT

The harvest has been speeding along in Minnesota this fall. So far, farmers have harvested three quarters of the corn, which is 10 points ahead of average. They’re wrapping up beans at 94% harvested, four points faster than normal.

Drought was widespread in Minnesota this season and while results are variable farmers say soybean yields have been disappointing while corn has been better than expected.

Nearly the entire state was hit by D1 to D4 level drought this season, but it was the third year for Bob Worth on his farm in western Minnesota.

“Some locations got some rain. And so, they’re not as far behind but most of our ground is seven to nine inches below normal.”

Plus, the heat was a double whammy and Worth says the yield monitor showed a 20 to 30 bushel drop on corn yields from the outer rows to the middle of the field.

Worth says, “Yes, we have tip back in the center of the field. Nothing on the outside. Just in the center. We do have tip back.”

Despite that the corn is standing well, disease pressure was low, and Worth says the results have been surprising at his Lake Benton farm.

“Our corn yields are so far running from 160 to 190 bushels. I mean, it just depends on the type of soil you have, but etc. and our APHs are 199. So, I mean we’re not that far off of a normal. When we get all done and average them all I think we’re going to be very, very happy with our corn yields. It’s just it just blows my mind.”

Worth farmed during some of the past drought years and in comparison, he’s not sure where the production is coming from.

“I lived through the 1976 drought, 1988 drought, the 2012 drought. My goodness this this stuff is just blowing the socks off it all. We actually had more rain back in 88 than now and this crop is just phenomenal and it’s dry. We’re taking it out of the field from 13.5% to 15%. So, we don’t have any expense drying.”

Unfortunately, soybeans didn’t quite fare as well as the corn. Not just because of the drought but also the heat. Worth says, “The heat took a lot off the beans because it just shut the plant down made it mature quickly and it just never got to fill the pods out.”

So, soybean yields were cut severely and ended well below his farm average. “Our range was 25 to 45 and our APH’s are 54. So, they’re down considerably from what we normally get. Soybeans were dry. They started off wet with two days of sun and high temperatures and when they went to 9% really quick.”

And with the dry beans they also had field loss. Worth says, “I mean, we lost bushels by shrink but we also lost bushels by field shatter.”

Statewide, crops are projected to be down in Minnesota compared to a year ago. USDA is estimating corn yield at 179 bushels per acre, 16 bushels below last year. Statewide soybean yield is at 48 bushels, down two bushels.

USDA Tightens Balance Sheet on Soybeans but Raises Carryout on Corn

Wed, 13 Sep 2023 17:17:49 GMT

The September WASDE was a disappointment for the bulls, especially on corn. Despite lower corn yields, an increase in harvested acres more than offset, resulting in higher ending stocks verses August. Meanwhile, on soybeans, USDA once again tightened the balance sheet, but it remains above estimates.

As expected, corn yields dropped in many states with Illinois and Minnesota both down 3 bu. and Nebraska was down 7 bu. The 1.3 bu. per acre drop nationally was disappointing, according to Ted Seifried, market analyst with Zaner Ag Hedge.

“A lot of analysts and brokers, for that matter, were really looking for numbers to drop a lot more than that, and the fact they didn’t is the biggest problem we have here today,” he says.

USDA incorporated the August FSA data and came up with 800,000 more harvested acres. Seifried says the $5.91 crop insurance guarantee and some lower input costs in the spring encouraged more corn. So even with a yield cut, production and corn ending stocks were increased 20 million bushels.

“We’re still well above a 2.2-billion-bushel carryover, and that is a problem based on the fact that production went up, but they didn’t do anything to increase demand,” Seifried says.

For soybeans, USDA lowered yield about as expected by 0.8 bu. per acre, with a 6-bu. drop in Kansas, 3 bu. in Nebraska and 4 bu. in Wisconsin. USDA only raised harvested acres by 100,000, resulting in a 60 million bushel drop in production. But ending stocks dropped only 25 million as USDA cut demand.

Seifried says: “207 million bushels was the average trade guess for carryover on a yield that was slightly higher than what USDA gave us. The fact that yield came in lower than the trade guess, but they had a carryover into 220 million bushels instead of like 205, that’s rough. USDA cut 35 million bushels off of exports and about 10 million bushels off of crush.”

On wheat, USDA left U.S. ending stocks unchanged at 615 million bushels, but lowered world carryover 7 million metric tons.

For cotton, production and ending stocks were lowered on a U.S. and world basis.

Argentina Soybean Crop Smallest in 25 Years Due to Historic Drought

Mon, 24 Apr 2023 21:38:24 GMT

A historic drought has severely cut the size of this year’s crop in Argentina, especially soybeans, and there are other headwinds for agriculture, including runaway inflation, an export tax and deflation of their currency, the peso, at play.

The market has been watching Argentina’s crop shrink throughout the growing season, which has supported U.S. prices, especially soybean meal. The Buenos Aires Grain Exchange pegs corn production at 36 million tons and it just lowered the soybean crop estimate another 1.5 million to 22.5 million metric tons.

The cut came as harvest has progressed and yields have been coming in even lower than expected. Market analysts there believe the final crop will be even lower than current estimates and less than half of normal. This makes it one of the smallest crops in nearly 25 years.

Sol Arcidiacono, head of the Latin American Grain Desk with Hedge Point Global Markets, says: “We are going to have a cut in production of 50% considering when we were seeding last November December. I think we’re going to be close to 20 million tons. This is really low. I have been in this industry for 20 years and I have never seen such a small crop.”

She says this will result in the No. 1 soybean meal exporting country in the world having to import around 10 million metric tons of soybeans just to keep their processors in business.

“It is going to be a challenging this year.” Arcidiacono says. “Argentina has crushing capacity of 60 million tons, and we are going to have a crop of almost 22 to 23. There’s going to be a big gap we will have to try to fill with imports.”

At the same time, the ag businesses and farmers in Argentina are also facing some of the highest inflation in history at more than 100%. This is why farmers there have been reluctant to sell their soybeans because they are holding the crop as a hedge against inflation.

As a result, the Argentina government instituted a soy peso program or preferential exchange rate to boost soybean exports. The first program in September generated around 7 million tons of soybean sales in a month, while farmers have only sold 1 million this round. The program lasts until May 31.

Crude Oil Moves Back Above $80 with Talk of $100 by Year End: What Does That Mean for Interest Rates and Diesel Fuel Costs?

Fri, 07 Apr 2023 14:49:03 GMT

Crude oil prices have made a big push from the lows both before and after OPEC plus announced it will cut production another 1.2 million barrels per day starting May 1. Nearby futures have topped $80 a barrel but some analysts are now projecting prices to move back near $100 by the end of the year. That’s fueling talk of more interest rate hikes by the Fed.

Shawn Hackett, Hackett Financial Advisors says, " Yeah, the market is thinking if that’s a more permanent move higher that’s going to take longer for the inflation numbers to come down. Until we get a big knock down in that inflation number month over month the Fed is going to want to be safer than sorry.”

So, farmers will continue to face higher interest and fuel costs down the road. Market experts are advising farmers to get some of their diesel fuel inventory locked in ahead of spring planting.

Rich Nelson with Allendale says, “A lot of the trade still expects further higher price action. Keep in mind for crude the general story has been one of disappointment for several weeks and several months. So, I think its great to suggest higher prices and I would get spring needs, spring and early summer needs taken care of but at this point and time I’m not sure we need to panic just yet and go whole hog on getting all our needs.”

However, Nelson isn’t expecting the record diesel prices of last summer because refining capacity has improved.

WASDE Bullish Beans, Slightly Negative for Corn, Neutral Wheat

Wed, 08 Mar 2023 18:22:13 GMT

WASDE Report was bullish for soybeans with a cut in U.S. ending stocks and lower Argentina production, corn ending stocks slightly bearish raised by 75 million bushels but Argentina production was again cut. Wheat balance sheets were left unchanged. What does it mean for the market? Jim McCormick of AgMarket.Net has details.

Natural Gas Rebounds Monday after Hitting Lows Not Seen in A Year: Is the Bottom In?

Mon, 23 Jan 2023 20:43:36 GMT

Markets Now: Natural gas prices rebound Monday after hitting lows not seen in a year. Is the bottom in? John Wenzel, Senior Risk Management Consultant with StoneX has details and a look at the crude oil and diesel fuel market outlook.

USDA Only Adjusts U.S. Corn Ending Stock in WASDE, Punts on South American Corn and Beans

Fri, 09 Dec 2022 19:11:02 GMT

Grains mixed after WASDE. The only change USDA made to U.S. ending stocks was in corn by lowering exports. They also left South American corn and soybean production unchanged. Brian Splitt of AgMarket.Net has analysis.

Fireworks from the WASDE Comes in an Unexpected Place

Tue, 13 Sep 2022 19:54:11 GMT

Corn and soybeans are pushing higher after some surprises in the September USDA Supply and Demand Report. Wheat continues mostly lower with no domestic balance sheet changes. Livestock mixed. Michelle Rook gets analysis with Matt Bennett of AgMarket.Net.