What are the odds for $10 corn, $15 wheat, $20 soybeans?

If you heard me give speeches throughout the Midwest this winter, you know that prices have hit technical chart objectives that quite frankly I thought would not be possible until summer. Those price objectives have been met and it is only the month of March!

Now we’re seeing May 2022 corn futures at $7.50, May 2022 soybean futures to $17.50, and May 2022 Chicago wheat futures soaring through $9 resistance, all the way up to $11.00!

4 factors to monitor

So where to from here? Let’s take a look at four factors to monitor this month, and scenario plan for either dramatically higher grain prices or a possible pull back from recent lofty values.

2 USDA reports to watch

On March 9, USDA will release its next WASDE report. Traditionally, the March report offers little fresh news, usually just minor tweaks. However, this report may be quite dramatic for trade as adjustments to demand and global supplies need to be brought forward.

The first item to look for is demand for grain exports for corn, soybeans, and wheat. Currently, weekly export sales for grains are in line with USDA projections, or in some instances slightly ahead of USDA projections in light of recent sales due to the war and lower South American Production.

The State of the Union address did little to suggest that this administration would do anything to damper the progress of green initiatives. Therefore, I do not think we see any reduction to demand for ethanol or biodiesel for now. And with multiple soybean processing facilities being built in the coming years, demand for the crush and biodiesel will likely, for now, on paper, continue to show growth.

Will USDA reduce ending stocks for the U.S. or the world? If so, by how much? From a global perspective, will the agency address potential production issues for Ukraine? How will it address Ukraine’s ability to export remaining bushels of grains within that country? Looking to South America, will USDA make the corn and soybean crops smaller, as trade has been anticipating?

Then, the next key USDA report in March occurs on March 31. That is the Grain Stocks and Prospective Plantings report. In my opinion, USDA will take clever tactical measures to make sure that the acre data released is vague enough to make sure as many acres, of as many commodities can get planted in the United States this spring. The stark reality is that we need every acre possible, as there are nine grain and oilseed commodities with tight ending stocks.

The world NEEDS the United States to plant a big crop and not have any weather issues this spring or summer. Add to it smaller than anticipated crops in South America due to drought and fear that the crop in Ukraine may struggle to get planted in the coming weeks!

Will the United States be able to provide enough planted acres to secure food for the world? Will acres need to come out of CRP to assist? Will all the acres slated to be “planted” as solar panels on prime Midwest farm ground be put on hold for one or two years to keep that important ground in production agriculture?

The war in Ukraine in terms of grain exports

For my undergrad in college, I majored in Political Science, and my minor was Agriculture Business. One of my favorite classes was “Russian Politics.” My professor was more like a storyteller, effortlessly weaving the sordid history of scorn “Mother Russian” dynasties, war, czars and oligarchs.

The history, plight, and pride of the Russian people runs generations deep. The resounding theme I took away from that class was the immense pride the Russian people have had in their various battles throughout history.

To many Russians, it was a badge of honor to have survived war, famine and hardship.

This helped me form an opinion as to why Putin followed through on his invasion threat. Over the past two decades, that older generation who had that deeply instilled love for Mother Russia, have likely died.

And now Putin is faced with a younger generation that is potentially more inclined to be open to Western ideologies related to democracy, and a new world of unison and peace.

If Putin was going to attack other countries to renew and relive “the greatness” of years ago, he had to strike now while there were still enough people who would support a new Soviet Union regime.

He likely views himself as a patriot. To the rest of the world, he is viewed as a ruthless ruler.

Regardless of Russian political theory, read Jacqueline Holland’s magnificent article to understand the details of what this invasion means for corn and wheat production, and export capabilities from the Black Sea region.

The bottom line, as she explains, is that “prior to the conflict, Russia and Ukraine were expected to combine for 29% of global wheat exports in 2021/22, the second and fourth largest global wheat exporters, respectively. In comparison, U.S. wheat exports only account for 11% of total world exportable supplies.”

Ukraine is the fourth largest exporter of corn to the world, and China relies heavily on its production. Will China start to turn to the United States to buy corn? Yes. This morning we saw “unknown” come to the United States to purchase 337,000 metric tons of corn for delivery in the 2021/22 crop year. 

The war in Ukraine in terms of grain production

The most recent USDA WASDE report pegged Ukraine wheat production for 2021/22 at 33 million metric tons. The year before that Ukraine wheat production was pegged at 25.42 mmt, and the year before that at 29.17 mmt. Their wheat production matters to the world. 

In terms of corn production, for the past three years, Ukraine corn production has been near 36 mmt on average.

What if Ukraine is unable to plant or harvest crops due to war? Can they get seed, can they get fertilizer, fuel, access to ports, or will their farmers be fighting Russian soldiers and not able to get a crop in the ground?

Should this scenario occur, new all-time highs could be made for corn, wheat and even soybean futures due to a portion of grain not being produced for the world.

We are talking about a potential for $10 corn futures, $15 Chicago wheat futures and $20 soybean futures. How did I come to this conclusion? Looking at long-term charts and connecting uptrend highs from previous years.

The funds

Finally, due to inflationary fears and a dramatic storyline unfolding for commodities, fund traders have been adding to long positions in grains. In addition, fundamentally and technically, the grain markets do have merit to continue to work higher.

Keep in mind, one year ago, the funds were given the “green light” to legally be able to own and hold more contracts of commodities than in years prior. And, in some of these instances, for some commodities, they are able to nearly double the positions they buy (or eventually SELL).

Right now, the funds continue to be buyers. And until they start to consistently shed long positions, the money flow is continuing to come into commodities. Thankfully, the funds legally have to report their positions weekly, and we are able to keep track of how their positions are trending.

Right now the trend is up, the war is keeping prices firm, and the nine grain and oilseed commodities that have tight ending stocks in the United States are all fighting for planted acres this spring. And we are still dealing with a drought in the United States.

The trend will likely stay up, but if the war suddenly stops, or if this administration opens CRP acres to allow more production, or if this administration puts a pause to corn used for ethanol or soybeans used for biodiesel, those are factors that would upend this rally. Prices could drop dramatically.

At some point, high prices will cure high prices. But for now, the trend is up.