Grains in the crosshairs on tight supply concerns Grains in the crosshairs on tight supply concerns Grains in the crosshairs on tight supply concerns

Grains in the crosshairs on tight supply concerns

Ole Hansen

Head of Commodity Strategy

Summary:  U.S. traded grain futures staged a comeback yesterday after two reports from the US Department of Agriculture raised the prospect for even tighter global supplies following the Northern Hemisphere harvest this autumn. The quarterly stock and annual acreage reports both came in lower than expected, and considering the U.S. is the worlds largest corn and second largest soybean producer, it highlights the risk to supplies at a time where weather developments remain very volatile.


U.S. traded grain futures staged a comeback yesterday after two reports from the US Department of Agriculture raised the prospect for even tighter global supplies following the Northern Hemisphere harvest this autumn. The quarterly stock and annual acreage reports both came in lower than expected, and considering the U.S. is the worlds largest corn and second largest soybean producer, it highlights the risk to supplies at a time where weather developments remain quite volatile.

The combination of lower planted acreage reducing the ability to replenish stocks now at the lowest since at least 2015, will result in the market becoming even more weather obsessed as changes up or down could still swing final production numbers by millions of bushels. Currently in the U.S. wet weather has hit parts of the U.S. farm belt, while drought risks are rising in northwestern areas and across Canada.

Why haven’t U.S. farmers responded to surging prices in recent months and gone all in to extract as much profit as possible following years of price disappointments? Perhaps the answer lies exactly in that, with farmers appearing to have become more disciplined following a number of years with low prices and excess supply. In addition the general commodity rally has also increased the cost of fertilizers and gasoline, thereby potentially deterring farmers from expanding sowings to far into marginal and less yielding areas.

The Bloomberg Grains Spot index jumped 6.4% with individual prices of wheat, soybeans and corn all rallying. Not least corn which after closing limit at $5.885 per bushel, a 6.3% increase on the day, has continued higher today.

Source: Saxo Group

Loss of positive price momentum since May helped accelerate an ongoing reduction in bullish grain and soybean bets held by speculators. Since the first week of January when the combined net-long hit a record 800k lots, it has been reduced by close to 50%. The bulk of the reduction being led by the soybean complex in response to slowing demand from China and President Biden considering to give refiners relief from U.S. biofuel laws, which require them to blend billions of gallons of ethanol and other biofuels into their fuel or buy credits, known as RIN’s, from those that do. The cost of RIN’s has reached a 13-year high, thereby putting some refineries at risk of bankruptcy.

Overall, however, the much reduced involvement from speculators may add some tailwind to the price as strong fundamentals may drive an improved technical outlook, which is what many leveraged funds focus on the most when making decisions to buy or sell.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992