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Feed Price Relief? Why One Veteran Analyst Who’s Been Bullish Grains for Two Years is Now Bearish

Soybean prices tried to recover this week after USDA's September Grain Stocks report sent prices tumbling lower last Friday. According to Mike North of, the big shock was in USDA's revision to last year's yield.

“Well, obviously, the change of yield on last year's crop was the thing that reverberated back through the stocks report, raising it and giving it a bearish tone relative to what we saw in corn,” says North. “Bottom line, though, is that change didn't take us out of this tight environment. All it did was surprise the traders. The reality is we're still relatively tight. So don't look for that to be a long-term bearish factor.”

Dan Basse of AgResource Company was also at World Dairy Expo for the live taping of U.S. Farm Report. He's been focused on the potentially tight supplies for nearly two years. Basse admits he’s been bullish on grains during that two-year period; however, he’s now bearish despite the crisis in Ukraine appearing to have no resolve anytime soon.

“If we think about our friends in Ukraine, and I talked to this morning, and we think winter wheat plantings are down 40% winter wheat plantings there,” says Basse. “Now they’re starting to cut their corn. Yields are not up to expectations, but we believe that Ukrainians will be relatively aggressive in offering corn.”

Basse says more positive news also came to fruition this week about Ukraine’s ability to continue to export more grain as the word watches more than 60 vessels waiting to set sail.

“There was a lot of discussion Thursday, the European grain market said maybe the corridor will not be closed down on November 22, Putin may be relenting a little on that, or maybe he's getting pushed into a corner to a degree and doesn't have the manpower to defend it,” says Basse. “But the UN and others are talking more favorably about the corridor, we'll see if it stays open. It's a political decision from Putin. But it's something to watch because Ukraine today has 65 vessels waiting to load. That's the most we've seen in a year and a half. They are trying to get grain out.”

The bearish outlook on grains is one that may not be bleeding over into every commodity. Drought's heavy toll on supply of essential feed elements- like hay and alfalfa- has University of Missouri livestock economist Scott Brown worried about feed supplies.

"If you look at feed prices on the dairy side, it's ugly," says Brown. "We see Dairy Margin Coverage (DMC) payments being triggered."

Milk prices had been holding strong this year, so it was the feed costs that triggered those payments for August. He doesn't see the equation improving to remainder of this year.

“When you look at where milk prices have gone, we've been coming off of the highs that we would have had a few months ago,” says Brown. “All of a sudden, the tightness in what we see on the grain side certainly tells me we're going to keep the costs high. Dry weather has kept hay and alfalfa prices very high as well. So, it looks like to me like we have more issues, more reasons to be concerned, as we start into 2023.”

North says there are some bright spots when it comes to dairy demand and prices, especially with the butter market, but the question is about how much of it is due to the seasonality of the market versus strong demand.

“We have an aggressive bid, and you'll see this predominantly around butter domestically, we have a strong bid in that particular market,” adds North. “But elsewhere, this is the time of the year when the retailer and end user is trying to fill the pipeline to make sure that all of us get to enjoy the holidays, the way we always have.”

The U.S. jobs report this week showed the labor market isn't cooling off as much as expected, instead, the report showed 263,000 jobs were added in September. According to Farm Journal Washington Correspondent Jim Wiesemeyer, that was above the estimate for 250,000, and signals the Fed will not move off its aggressive approach to rate hikes.

Basse says despite inflation and expectations for a recession, dairy demand hasn't faltered.

“We're not seeing it in the data just yet,” says Basse. “I mean, the data is pretty clear. Even at $3 plus butter prices, we're not seeing any demand destruction. Where I'm a little worried about is the strength of the U.S. dollar having an impact on exports. We are seeing it whether it be grain or dairy or other things, maybe it depending on the commodity beaten down seven to 20%. So the strong dollar is having an impact. It will transfers to maybe capping rallies down the road. But I agree with Mike, I don't see any downside risk, at least at the moment."


October 7, 2022



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