Commentary provided by Chad Burlet of Third Street AG Investments

We’re more than three months past the Russian invasion of Ukraine. Yet, developments in the Black Sea and countries’ reactions to these developments continue to dominate our markets daily. The loss of Ukrainian sunseeds and sunoil prompted Indonesia to ban palm exports. The loss of Ukrainian wheat prompted India to first accelerate and then ban wheat exports. Higher world prices have prompted importing countries to reduce or eliminate import duties on all types of agricultural products and to increase their forward ownership.

The newest chapter of this saga has focused on efforts to get Russia to agree to allow Ukrainian agricultural exports to resume. Headline risk is at an all-time high as Putin is alternately reported to be ‘agreeable’ and ‘completely unreasonable.’ Turkey and the United Nations are working vigorously to find a solution, and reports of those efforts helped our markets close on a bearish note.

Chicago wheat futures traveled a great distance during May. After setting their lows on the first trading day, they rallied $2.50/bushel into the middle of the month and then broke $2/bushel in the final two weeks. We were locked down the 70-cent daily price limit in July futures today, which left us 32 cents higher for the month.

July soybean futures had a much smaller trading range than July wheat and ended the month virtually unchanged, but those statistics mask a tumultuous month in the oilseed complex. On April 28, July Board Crush settled at $2.14/bushel, a new contract high. Today July Crush settled at $0.86/bushel, a new contract low. Soymeal was down 4% for the month, and soyoil was down 7.4%.

Despite gaining more than a dollar per bushel on the products, July soybeans had a disastrous final day of the month. In the wee hours of this morning, July futures traded to a new contract high of $17.49¼. Eleven hours later, prices had dropped 75 cents en route to a net loss on the day of 49 cents. That sequence of events, including the settlement well below Friday’s low, constitutes a key reversal, a very bearish technical signal.

The loss of Ukrainian corn exports was the catalyst for a major change in world corn trade. In its May 19 Weekly Exports Sales Report, the USDA said that 50% of the previous week’s old crop corn sales and more than 90% of the new crop sales were to China. That day also brought a rumor that China had bought Brazilian corn. That rumor was viewed with skepticism because of the lack of a phytosanitary agreement between the two countries. Early the following week, the two countries announced they’d made just such an agreement, and that technical details were being worked out. It was a significant setback for the U.S., which had benefited significantly from Ukraine’s absence. Those weekly sales numbers were a testimony to China’s importance for the U.S., and Brazil will now compete for that business for the foreseeable future.

Domestically the lead story for the first half of the month was the slow start to spring planting. Cool, wet weather had delayed many areas, but both corn and soybeans are close to their five-year averages as we end the month. The eastern Dakotas and western Minnesota are the furthest behind areas, and last Friday, a leading consulting firm lowered their corn and spring wheat planting estimates by a million acres each. Their estimate of total U.S. acres that we will be prevented from planting is now five million, almost double their original estimate. The USDA is allowing acres leaving the CRP program to exit a year early without penalty, but none of those acres are available this spring.

As we look ahead, the Black Sea will remain the dominant variable for our markets, but growing weather for the U.S. and other key producing regions in the northern hemisphere will be a close second. Should a production problem arise, that concern will quickly move to the top of the list.

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Photo by Waldemar Brandt on Unsplash