The most recent for 2016-17 suggested corn and wheat prices may weaken while soybean prices stabilize. That contrasts directly with current – and markedly higher – prices for corn and soybeans in the futures markets.
USDA vs the markets: They differ now, but will they align?
Three factors will determine if the USDA revises their price projections down to align with the current market:
1. The value of the USD
If it falls, demand is likely to increase in response to buyers’ purchasing power – and increased demand supports U.S. prices for grains and oilseeds. The financial markets are now definitely bearish on the USD.
2. Weather impacting production
It’s too wet in Argentina and too dry in Brazil, which has led to production concerns and higher prices for corn and soybeans.
It’s too early in the season to project any type of significant deviation from average yields. However, given the existing volatility in markets, weather patterns developing in any globally important production region will impact markets.
3. Demand for grains and oilseeds
The USDA projects stable ethanol production and strong demand for feed. If the feed demand doesn’t meet the USDA projection, a strong ethanol market could make up the shortfall. Demand in China, Japan and India must remain strong to sustain prices at current levels.
Also on your radar
Finally, keep an eye on the value of the Canadian dollar, which recently broke the major resistance threshold of US $0.78. Having fallen again, the lower loonie is favourable for producers. We definitely expect the loonie to close the year under the US $0.80 level.
It’s never too early (or too late) to think about a marketing plan. Sound risk management will be key to navigate the potentially volatile environment of the 2016-17 marketing year.