Soft grain markets blamed on slowing economies

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Soybean field in Portage County, Ohio on August 18, 2022. Farm and Dairy file photo.

Prices were lower on corn and soybeans markets last week. The blame was put not so much on weather this week but on the general negative tone of economic projections, both here and in China. 

To an extent, this is a market looking for an excuse to fail, but let’s look at the argument. 

Housing market

A leading economic indicator here is always the pace of housing, both in new construction and in sales of existing houses. This indicates long-term consumer confidence, and it appears that confidence is waning. 

Higher interest rates, the fear of interest rates continuing to climb and the fear of uncertainty in job markets are all combining to give us poor numbers for the housing industry. 

This week, we were told that housing starts are down 9% from a year ago, and the sale of existing homes is down 6% for the same period. The housing industry is being hurt by a reaction to interest rates climbing out of the cellar for the first time in a decade. We have been paying historically low prices for interest, near zero in fact. 

Since I had lived through the variable rate crisis of 18% interest in the 1970s, the recent rates were ridiculously low, but welcome. I joined the refinancing rush and was glad to get the cheap rates. 

The rates, however, were immediately ratcheted into higher housing prices, and the economy now cannot absorb the higher interest and maintain house prices. The result was predictable, and we are seeing it. 

Add to this uncertainty the predictions of a shrinking economy. Those struggling to buy their first homes are especially fearful, as they tend to be the people most as risk in a failing economy. 

It is the economy in China that really worries the traders, however. They are having a difficult time fighting off the resurgence of COVID-19 and are currently struggling with another round of lockdowns. This means they will reduce consumption and decrease production, which will impact our ag economy. 

Big boom

I remember 40 years ago going to national meeting after national meeting and being told that the big boom coming was demand for grain and grain products by the Chinese. The idea was that the Chinese economy was booming and that would be expressed in demand for meat by a more prosperous population. 

Demand for meat means demand for grain to be converted to meat. Demand for meat by their huge population would be expressed in good days for the American farmer. 

In fact, that demand did eventually happen. We got teased about it for 10 years, and then we saw it develop into one of the biggest demand and price factors in our markets. Now it is institutionalized into our balance sheets, especially for beans, and we can’t do without it. 

It was only two or three years ago that all our ag articles were dominated by the so-called Phase One trade agreement with China. Would it happen? Would China really honor it? What would be the result? Well, it did finally happen, after most of a year of negotiations, and the results were wild. The Chinese did honor it. 

Now the fear is that they won’t need the grain in a slowing economy, and that fear is being translated into lower prices. 

Trading crop conditions

Last week, December corn futures were off 19 cents. The good news is that the market this week is trading crop conditions instead of longer-term trends based on economy. 

It is late in the summer, and we hoped for better conditions, but the U.S. Department of Agriculture reported Aug. 22 that the average corn condition for the country was off 2%, to just 55% good and excellent. The soybeans were rated a percent lower, at 57% good and excellent. 

These ratings blunt the anecdotal reports of timely rains helping crops. It is too late to help the corn in some areas. 

We reversed the market Aug. 22 with a corn gain of almost six cents in December futures. We were seeing a gain of almost 30 cents and we were trading at 6.58 the morning of Aug. 23. 

Meanwhile, the November soybeans were up 31 cents Aug. 22 and 24 cents early Aug. 23, to a level of $14.60. 

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Marlin Clark is an associate of Russell Consulting Group, with a local office in Williamsfield, Ohio. Comments are welcome at 440-363-1803.

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