Rural Voice Market Commentary – June 2023

by: Scott Krakar

As we move into summer grain prices have many headwinds ahead of them.  Interest rates, recession fears, large world inventories, and poor demand all weigh on the sentiment in the grain pits.  Central Banks continue to push for inflation control measures, as evidenced by another recent rate hike by the Bank of Canada.  The purpose of higher rates is intended to prevent prices of goods from moving higher and accordingly higher rates fight against higher commodity prices also.  The desired effect of higher interest rates is to slow economic growth however some fear an overtightening of the economy, leading to the possibility of recession.  At this juncture, the only thing supportive of grain prices could be weather issues that affect the production outlook of US crops this year, if weather is not supportive of crop growth.  The US has been experiencing dry weather in a wide region of the country, and early June has market watchers concerned about early season dryness.


Recently this dryness in the US has been supportive of grain prices.  We’ve seen extreme drought in the US plains greatly impact the US HRW production.  Parts of the Northeast US, the corn belt and also here in Ontario, have experienced what is considered a flash drought, and this has arisen throughout a widespread region.  Some areas including northern Illinois and Michigan as examples, have seen the driest May in more than a century, with some areas receiving only about 10% of normal May rainfall.  Along with the lack of precipitation, comes an increase in drought stress throughout the affected regions.  In early June, 45% of the US corn area and 39% of the US soybean area were in drought conditions.  These factors have caused grain markets to enter what is typically called “weather markets” as weather concerns bring buyers to the market.  Weather markets are notorious for wide volatility and fast moves in pricing.  The market can move sharply higher quickly as concerns grow, and shortly thereafter can fade dramatically lower as crops see better weather, or the weather appears to be forecast to be better in the near-term future.

It is early in the growing season for dryness to be so widespread and concerning already.  Rains that have come through in many areas have been disappointing relative to forecast expectations.  Many think that the rain events recently may only be enough to stabilize the crop for a short time, rather than improve moisture conditions prior to the beginning of summer.  From this observation, some analysts are beginning to lower yield expectations for the US corn crop this fall.  It is still relatively early in the crop year, and therefore sharply lower yield expectations may be premature.   But if conditions do not improve with increasing precipitation amounts, this early expectation may prove to be correct.  It seems the US crop is coming to a juncture in the next few weeks which will provide clearer crop expectations as we head into July.

Wheat harvest is ongoing in the southern US and is moving northward.  The US HRW crop, even though it is greatly reduced from the traditional crop size, is finding limited demand.  US Hard wheat has essentially priced itself out of the world wheat market with high prices rationing buying interest.  Further cuts to US HRW demand have recently occurred as the US government has withdrawn food aid to Ethiopia.  This withdrawal of food aid has occurred because of the widespread corruption of many who are diverting and selling the donations, rather than distributing the food as food aid to their vulnerable and impoverished.  This corruption is described by US Food Aid authorities to be a “widespread and coordinated campaign.”   The incentive for corruption is huge.  In the last 10 years the US has donated over 10 million bushels of wheat per year to the nation.  Last year alone donations were over 23 million bushels – with an estimated value of over $230 million dollars.   I’m reminded of a quote from American author Laura Ingalls Wilder from one of her novels, “Where there are deer there will be wolves, and where there are horses there will be horse thieves.”  It seems this sentiment holds true for wheat donations as well.

US SRW yield expectations have recently been reduced.  There have been great expectations that the Soft Wheat crop would yield extremely well this year.  Afterall the crop was planted timely last fall in great condition, the winter was not detrimental, and the spring was generally well suited for the crop.  That is until the heat and dryness came, and record yield expectations fell rapidly along with the condition of the crop.  Here in Ontario, we are seeing the crop appear to be more disappointing than it once had potential for.  Some fields, especially fields with light soils have experienced drought damage, that will greatly affect yield in some fields.  While this is the case in some spots, overall widespread rains did fall just after many fields pollinated.  The hope is these rains will support the crop as the wheat enters the grain fill period.