Volatile Markets and Persistent Drought Predicted to Elevate Crop Prices

Persistently dry conditions and volatile markets are shaping the upcoming harvest season with an expected surge in crop prices. Much of Iowa, Illinois, and Missouri are grappling with varying degrees of drought, according to the U.S. Drought Monitor report dated July 27, which leaves many farmers concerned about their harvest yields and selling strategies.

As shared by Mike Zuzolo of Global Commodity Analytics, one farmer from Iowa expressed concerns about selling any more corn due to the uncertainty about the yield. Zuzolo further observed that the current data suggests a corn yield that will struggle to match last year’s levels and may even fall short of those from 2019.

The ongoing drought stress index for the Corn Belt is similar to that of last year. However, as drought impacts are cumulative, adverse effects on yields in many areas are likely. For farmers uncertain about their harvest season prospects, Zuzolo recommended securing a reliable floor with put options for September or December contracts.

Zuzolo also highlighted that the markets should transition from aggressive selling to buying dips. “I like being 100% hedged on insured bushels and I’m ready to do that on soybeans too,” he stated, adding that “70% of that is going to be with bought puts.”

At the end of July, a major heatwave hit the Midwest, pushing temperatures close to or above 100 degrees Fahrenheit. Although it brought some storms, there were no “organized systems,” said Zuzolo. Corn market trends were somewhat surprising, as July 24 crop conditions didn’t reveal a decline in good-to-excellent ratings.

Brian Anderson of Stewart-Peterson trading expects that early August reports, following the pollination period, will provide a clearer picture of yield prospects. He noted, “Our expected average yield is about 4 bushels per acre below the USDA expectation.” Anderson believes that a reduction in USDA numbers should drive up prices.

Soybean futures have been trending upwards in recent weeks, boosted by the recovering Chinese economy as their hog markets rebound. Additionally, the instability in the Black Sea region, coupled with the escalating Russian conflict with Ukraine and the expiry of the Black Sea Grain Deal, is expected to contribute to further market volatility.

The futures market is still grappling with the uncertainty of Ukraine’s export capacity, given that their only viable export route seems to be through eastern Europe via truck or rail transport. As Ukraine is a prominent corn exporter, this situation is likely to exert significant upward pressure on corn prices.