Analysis Grains
Growers struggle with high cultivation costs and interest
It continues to be a struggle in the wheat market. Nerves about disappointing yields in the Black Sea region are fading. Weather in the US is favorable for the wheat harvest, putting pressure on the supply of the new crop. High costs are causing doubts among arable farmers in the US about whether to sow corn or if soybeans are a safer option.
The September contract for wheat closed €4.25 lower at €254.25 per ton. On the CBoT, wheat traded 1.7% lower, closing at $6.46¾ per bushel. Corn also took a step back, closing 0.7% lower at $4.36¼ per bushel. Soybeans mostly moved sideways, closing 0.1% lower at $11.77¼ per bushel.
With just over three weeks remaining in the grain export season 2023/24, which runs until June 30, Ukraine has exported 17.6 million tons of wheat. The USDA predicted Ukrainian wheat exports of 17.5 million tons for the season. In total, Ukraine has exported 47.4 million tons of grain compared to 45.6 million tons during the same period last season.
Driest May in 30 years
This past May was the driest in thirty years in Ukraine. In some regions, it was even the driest May in one hundred years. Concerns about drought in Ukraine and also in southern Russia in the wheat market are diminishing according to analysts. SovEcon has come up with a new yield forecast for wheat in Russia, estimating it at 80.7 million tons. In the previous forecast two weeks ago, it was 82.1 million tons.
The tenders from Egypt and Algeria earlier this week caused some additional weakness in the wheat market yesterday. Compared to the new crop on the futures market, a small 1.3 million tons of wheat from the old crop were sharply purchased by the North African countries.
In the US, the weather is cooperating for the wheat harvest in the southern prairies. The weather forecasts predict dry weather for the next ten days. If the weather forecast holds true, the harvest caravan can steadily move further north.
Growers struggle with costs
Corn is experiencing the effects of developments in the wheat market, as wheat prices pull corn down. A good start to the corn growing season gives it an extra push. Farmers in the US, according to some sources, have less confidence in corn this season and seem to view soybeans as a safer option. Corn is a relatively expensive crop for American farmers. Farmers who rent land and have to finance seeds, fertilizers, and pesticides with borrowed capital are wondering whether they should take the risk of sowing corn. An additional limiting factor is the relatively high interest rates. Whether you have to prefinance $700 per acre for corn or $350 per acre for soybeans makes quite a difference at 7% or 8% interest. Reuters reports that the average cost for growers in Illinois is above $4.50 per bushel for corn and $11.50 per bushel for soybeans.
Wet conditions in the cornbelt are another factor that may lead to extra soybeans being planted at the expense of corn. A large portion of the corn was planted on time and under good conditions. However, due to frequent rainfall, farmers cannot plant corn on all the plots they had intended. Planting corn after June 1 affects corn yield. Soybeans can be planted later without sacrificing potential yield.
