Taking a 360° view
It’s been a general opinion held in the office here for quite some time now... the news is getting harder and harder to digest. So much of our day-to-day has moved from tracking the fundamentals of growing crops around the world, to being impacted by geo-politics in a way we never imagined. But trying to form an opinion on what one world leader will do at any one time to spook our markets is an impossible task, so we must start facing back in towards market fundamentals.
I am writing this article not long after the latest US Department of Agriculture (USDA) stocks report, which threw up one or two surprises. US wheat stocks were in line with expectations, soybean stocks above expectations, but corn stocks were well below where the markets had hoped. The result of this is that the world is heading towards the tightest grain inventories in years, despite the flow of grains out of Ukraine. In effect, the world is at a crossroads between higher and lower prices, it’s all over to North and South America now.
The latest USDA crop progress report shows the US corn and soybean harvest at 20% and 22% complete respectively. Yields are coming in anywhere from average to below-average, which is making analysts nervous. At the same time, in South America, Brazilian soybean plantings are underway at 2% complete in okay conditions. But in Argentina severe drought caused by the ongoing La Niña weather event is delaying corn plantings and could potentially slash yield if rains do not appear soon.
It should also not be overlooked that there are significant recession fears across world economies and the demand destruction that they cause could put significant downward pressure on agricultural commodity prices. We are already starting to see demand slow across the UK and Europe. For now, our focus remains on US yields and South American planting progress and conditions. It is in these two areas that the grain markets will rise or fall in the coming months.
On a positive note, we have seen a resurgence at the time of writing in our currency. GBP/ USD collapsed to all-time-lows of $1.0327 in September thanks to the government’s wildly unpopular ‘mini-budget’. Thankfully, some intervention from the Bank of England and a reversal of scrapping the 45% top-bracket tax has pushed GBP back to pre-mini-budget levels.
David Andrew
Raw Material Manager
First Published - NFU Poultry Magazine October 2022.
