Marketsfarm – The decision by the United States Federal Reserve on July 26 to raise its key interest rates mostly served as a distraction on the Chicago Board of Trade (CBOT) from other events affecting grain futures.
The central bank continued its efforts to wrangle inflation by pushing interest rates up 25 basis points to a range between 5.25 and 5.5 per cent. However, Sean Lusk, vice-president of Walsh Commercial Hedging Services in Chicago, said that the interest rate hike was largely expected by the trade.
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“I think it was priced in. If they didn’t (raise rates), it would’ve been the surprise,” he said.
Various amounts of rain across growing areas of the U.S., along with Russia’s withdrawal from the Black Sea Grain Initiative and its subsequent attacks on Ukrainian ports have caused erratic price movement for corn and wheat during the week ended July 26. The September corn contract traded at a range of 42 U.S. cents per bushel before settling in the middle at US$5.4025/bu. September contracts for the three major U.S. wheat varieties traded at a range between 85 U.S. cents to US$1.05/bu.
“You have real warm weather in the U.S. It’s been heating up too with decent rain coverage in the Midwest,” Lusk said. “Places need it and more is coming for the first week of August.”
He added that without greater export demand for U.S. corn and wheat, it will be hard to convince the U.S. Department of Agriculture (USDA) to tighten its bearish production and carryout numbers.
“Until the market senses that it has a pretty good idea what the crop is or isn’t, you’re going to get these gyrations in the market,” Lusk said.
He also identified the situation in Ukraine as a long-term concern, saying that Russia’s bombings of ports along the Danube River “changes things logistically for a moment.”
“In the global export market, Ukraine feeds a lot into China. Do they forego buying from (Ukraine) because you can’t get it out of there, or do they come to (the U.S?),” Lusk said.
Corn is going to need help from other markets to keep prices high, according to Lusk, but the array of factors is making it difficult to determine where all grain prices will go next.
“We’ll see what happens, but I think further out, we have some stuff here that’s potentially bearish as we head into this part of the year if we haven’t had weather hiccups or problems from Ukraine. That’s the issue,” Lusk predicted.
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
