Steve Kell’s
Market Minute
Agricultural commodities markets tend to have a reliable seasonal cycle to them, and that “seasonality” in prices is almost entirely the result of weather during the growing season for the major crops in the significant production regions around the world.
For North American corn and soybeans, May and June are a critical period in the production year because that’s when the crop gets planted, emerges, and gets started on its road to maturity. Weather issues in that key period cause concern about the production potential for the crop, and prices tend to react quickly. The price’s weather anxiety over crop health tends to peak at some point in June, and typically once we get past that the market tends to relax.
One of the best kept secrets of the 2023 commodities markets is that we actually had a significant weather rally which drove prices higher in late May and early June. Between May 18 and June 13, December corn futures rallied from a low of $4.90 to a high of $5.59, and July corn futures bounced from a low of $5.47 to a high of $6.25. In a period of less than 4 weeks, both old crop and new crop corn futures values rallied more than 12 % in the Chicago Mercantile Exchange.
While the move in soybeans was not quite as dramatic or as sustained, November soybeans moved from a low of $11.30 on May 31 to a high of $12.49 on June 12 resulting in a gain of 9 % in just 9 trading sessions. If you were trying to attract money into investment funds, these ag commodity rallies are noteworthy both for speed and size, but it seems that they were largely ignored in the farming community because they fell short of many people’s price expectations.
The real bandit that has stolen away the 2023 spring commodity price rally is the Canadian dollar. In the third and fourth weeks of May, (when corn and soybeans futures prices were putting in their lows), the July Canadian dollar traded as low as $0.734 US. By the time that the Chicago grain futures hit their short term peaks in the second week of June, the July loonie was trading as high as $0.7495 US. Since agricultural commodities trade in a global marketplace, their value is measured in American dollars. The cash price of a Canadian harvest soybean, (at a $-0.20 US basis) was $15.12 at the end of May when the Chicago futures bottomed, but that same soybean, (at the same $-0.20 US basis), only went up to $15.81 when the futures hit $12.05 on June 9 because the Canadian dollar had risen more than 1 ½ cents on the previous 2 weeks. Had the loonie remained at $0.734, the Ontario soybean price would have risen to $16.14 on the same futures rally. The bottom line is that the rising Canadian dollar carves $1 per bushel out of the spring rally in soybean prices effectively camouflaging the strong market moves from producers who were simply monitoring prices in Canadian dollars.
2012 was the last major continental crop season drought, and it is the last time that the summer weather rally really had its big run after (the American July 4th) or Canada Day long weekend. In fact in 2012, the weather market didn’t really get rolling until late June. However, even in that year of devastatingly bad yields across significant swaths of North America, the price rally did not extend all of the way to harvest. In 2012, December corn futures peaked on August 18 and for the remainder of the growing season right through to harvest, values trailed off the mid-summer highs. The reason that the rally ends well before harvest is because price movements are the market reacting to the things which it does not know, or is in the process of learning. Even with 2012’s bad yields, by the time we got to mid-August, we’re past pollination, you can do kernel counts and estimate yield, and the crop in the southern US Gulf States is very near harvest, the crop’s potential is well understood and there’s very little left for the market to learn about the crop year’s potential supply.
In a “normal” year, the summer time weather rallies tend to flare out by early July. Spring is full of potential problems for crop development. Planting can be interrupted or delayed by cold or wet conditions. Germination or emergence can be set back by drought, soil crushing, or frost. The total acreages planted to any given crop can also shift through spring as farmers adjust the seeding plans in reaction to weather issues. However, by the time we get to the July long weekend, those variables have all played themselves out and prices are not reacting to them anymore. In a typical year, there is not much upside potential in old crop prices once we get past the Canada Day milestone. There is still some amount of debate about whether or not 2023 is a “typical” year, but only time can answer that question. Old crop prices for corn and soybean in storage tend not to rally very much through the second half of summer, so farmers who still have old crop to market are going to assess the odds of this year being any different and likely just tidy things up before the June rally turns into the July doldrums. These are not going to be the sales which are fun to make. Marketing crop in late June is going to be a bit like taking a shovel and scraping a skunk off the payment in front of your house. It won’t be at all pleasant, but the sooner you clean it up, the less it will bother you later.
Once the crop is up and growing, the potential for weather to damage it is reduced. Following the May-June rally, the next major weather hurdle for this year’s crop to clear is temperature and moisture issues in late July or early August which could impact pollination in corn or pod set in soybeans. Statistically, it is unlikely that the late summer price rallies would exceed new crop values at the start of July, but like every other roller coaster, Chicago futures prices won’t stay the same for long.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
