August 9, 2022
Extreme weather, inflation and the war in Ukraine are all creating uncertainty for U.S. grain markets. CHS global market insights analyst Joe Lardy discusses what factors may shape the rest of the season.
Optimizing farm profitability relies on effective grain marketing, but it’s not always easy to anticipate where the market is headed. Joe Lardy, global market insights analyst at CHS global research, says there is plenty of uncertainty this season, making that task even more challenging.
Market variables are unpredictable
Lardy discusses some of the many variables that have played a role in fluctuating grain prices.
Weather is always critical to yield potential at this point in the season, he says, so analysts are watching closely as drought and excessive rain events affect regions of the U.S. The ongoing conflict in Ukraine is creating uncertainty, with analysts wondering about the scale and reliability of Ukrainian crop exports. Inflation and the possibility of an impending recession also have the markets on edge.
“Inflationary markets are generally very good for commodities, while recessionary markets are generally very poor for commodities. This inflation and recession story can either work for famers or against them, depending on how the market feels about it,” explains Lardy.
Weather extremes could limit productivity
Compared to mid-season 2021, Lardy says weather conditions across the country have changed dramatically. Regions suffering from drought conditions last season have mostly recovered, while other areas, including Texas, Missouri and the eastern Corn Belt, have seen limited moisture this season. Recent flooding in the eastern U.S. will likely impact crop condition and harvestability, further fueling doubt in the marketplace.
“It’s made for a very challenging growing season because there has been a lot of environmental variability across the country,” says Lardy.
Ukraine conflict adds complexity
While the weather is always a significant market mover, the war in Ukraine is adding an extra layer of ambiguity for U.S. farmers this season.
“The grain market hangs on every development coming out of Ukraine. It is such an influential player in the wheat market, but it’s also traditionally the biggest sunflower producer and exporter worldwide, so anytime we have news about what’s happening in Ukraine, the market goes up or down correspondingly,” says Lardy.
In the U.S., analysts are wondering whether Ukrainian crops will get harvested and, if they do, if export ships will make it safely to their destinations. Lardy believes early developments in grain exports from Ukraine seem positive, which would increase supply and could reduce demand for U.S. grain.
Market movers in the weeks ahead
As harvest approaches, several government reports could influence markets. “The August WASDE report is imminent and will likely change yield projections. That report usually sets the tone for what we could see the rest of the growing season,” explains Lardy. “In addition to the August and September WASDE reports, the September stocks report will directly impact commodity prices. Farmers should be aware of how the timing and magnitude of those reports could impact their decisions.”