Grains In Q3 A Look At The October WASDE Report
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 ZOZ21 - Oats

A composite of grains and oilseed products that trade on the futures market moved 4.99% higher in Q3 and was 17.83% above the closing level on December 31, 2021. The composite includes corn, soybean, CBOT soft red winter wheat, oats, and rough rice futures. Three of the five posted gains in Q3, and four of five were higher over the first nine months of 2021. 

The grain and oilseed futures arena has seen more than its share of volatility over the past months, with the leading corn, soybean, and wheat futures moving to the highest level in eight years. Dry weather, rising inflation, increasing input costs, and ever-growing global demand supported the products that provide nutrition to over 7.7 billion people on our planet. 

The end of Q3 comes amid the 2021 harvest season in the US and northern hemisphere. Over the coming weeks and months, the market will focus on the weather and conditions below the equator as Brazil, Argentina, and other countries move into the 2021/2022 planting season. 

Grains gain in Q3 thanks to oats and wheat- 5th quarterly gain

The grain sector posted its fifth consecutive quarterly gain in Q3. The breakdown of the composite for the third quarter and over the first nine months of 2021 is:

  • Corn- Down 25.45% in Q3 and 10.90% higher in 2021
  • Soybeans- Down 13.38% in Q3 and down 4.50% in 2021
  • CBOT wheat- Up 8.04% in Q3 and 13.27% higher in 2021
  • Oats- Up 51.63% in Q3 and 61.40% higher in 2021
  • Rough rice- Up 4.10% in Q3 and 8.08% higher in 2021

Oats were the big winner as dry conditions weighed on supplies. 

CBOT oat futures were the big winner, rising to a new record high in Q3, closing at $5.82250 on September 30. The buying continued in early Q4, with the price rising to a high of $6.8625 on the nearby futures contract.  

Corn and beans decline

Corn and soybean futures corrected lower in Q3, with corn leading the way on the downside. 

After rising to the highest price since 2012 at $7.7650 in Q2, nearby corn futures closed Q3 at $5.3675 on September 30. Corn was at the $5.2575 per bushel level on October 15, as the selling continued in early Q4. Corn is likely to find support from rising energy prices as energy is a critical input component. Moreover, strength in gasoline supports corn as the coarse grain is the primary ingredient in US ethanol production. 

Nearby CBOT soybean futures reached a high of $16.7725 per bushel in Q2 and closed Q3 at the $12.56 level. November soybeans were trading at $12.1775 per bushel on October 15 as the selling continued in early Q4. Soybeans should find support from the robust demand for the oilseed in China. However, beans fell out of the teens in Q3 and so far in Q4.  

The October WASDE- Going into the offseason

On Tuesday, October 12, the USDA released its October World Agricultural Supply and Demand Estimates report. The full text of the latest report is available through this link

The news for corn and soybeans was primarily bearish, and price fell in the wake of the report that many producers and consumers view as the gold standard for fundamental data. Wheat fundamentals remained strong with a reduction in global ending stockpiles. 

The 2021 crop year is now in the books in the northern hemisphere. The weather conditions in Brazil, Argentina, and other countries in the southern hemisphere will guide prices over the coming months. However, the US dollar, supply chain bottlenecks, and rising energy and freight costs could impact prices.

The weather south of the equator is now in the spotlight

While grain market participants will be watching the weather reports in Brazil like hawks, the supply chain could continue to impact on prices significantly. Brazil has had a rough winter season with a frost devastating the coffee crop and pushing futures prices over the $2 per pound level for the first time since 2014. Brazil is the world’s leading Arabica coffee producer and also leads in sugar and oranges. Over the past months, sugar and FCOJ futures also reached multi-year highs as the Brazilian weather caused supply concerns. Since Brazil is a leading soybean producer, the conditions over the coming weeks and months during the planting and growing season could cause lots of volatility in the futures arena. 

In corn, the ascent of oil, coal, and natural gas prices supports the coarse grain. Wheat futures remain above $7 per bushel as the US is one of many producers, with Russia leading the world in exports. Dry conditions over the past months have lifted MGE spring wheat futures to over $9.60 per bushel at the end of last week, the highest price since November 2012.  

Prices are higher on a year-on-year basis

At the end of Q3 2020, grain and oilseed prices were mostly lower than at the end of Q3 2021.

The chart shows that except for soybean meal, all grain and oilseed prices were appreciably higher at the end of Q3 2021 than on September 30, 2020. 

The bottom line is it costs a lot more to eat in 2021 than last year. The world’s population continues to rise by over 20 million people each quarter. There are more mouths to feed in 2021 than in 2020 and less than there will be in 2022, putting upward pressure on the fundamental equation’s demand side. 

Last week, CPI data shows that inflation rose by a more than expected 0.4% in September, pushing the year-over-year gain to 5.4%.  Excluding food and energy, the increase was just 0.2% and 0.4%, respectively. Meanwhile, since food and energy are essentials, inflationary pressures continue to eat away at paychecks and savings. A continuation of rising inflation would be bullish for agricultural commodity prices, and they push up all input costs of growing the products that feed the world.