This is an updated version of an analysis first published in the May 2 Pro Farmer weekly newsletter.
A faltering spring rally for grains and the soy complex may hang in the balance as producers and traders prepare for a week jam-packed with potentially market-moving events.
- On Tuesday, USDA will deliver its May World Agricultural Supply and Demand Estimates, or WASDE, report, which will offer the department’s initial outlook for the new crop year.
- On Wednesday, the House is slated to vote on long-sought legislation to green-light year-round sales of E15.
- And in what is likely to be the main event, President Donald Trump is scheduled to visit China Thursday and Friday, where a meeting with leader Xi Jinping is hoped to bring affirmation that Beijing will follow through on commitments to buy U.S. soybeans and possibly other agricultural goods.
There’s also the Iran war, which in the past week overshadowed individual market fundamentals as a U.S. proposal to open the Strait of Hormuz and end the conflict sparked a
crude selloff that dragged grain markets back from recent highs.
Let’s break down what’s at stake:
May WASDE
While the May outlook often sets the initial tone for the new crop year, the timing of the forecast during corn and soybean planting season leaves high potential for changes later
in the year, with both acreage and yield still fluid.
Over the past 30 years, on average, USDA’s initial forecast for soybean ending stocks is 78 million bushels higher than the final estimate. For corn that disparity is even wider at 129 million
bushels higher than the initial forecast. With fuel and fertilizer prices rising sharply this spring, that further exacerbates the variability around potential yields as farmers may cut inputs to save costs.
Due to winter wheat already being planted and the agency including survey yield data in this report, the margin of error in ending stocks is smaller, and averages 51 million bushels lower than the final.
The May WASDE is generally neutral in terms of the direction it moves the price of row crops, with July HRW and SRW wheat futures ending the day of the WASDE release higher 14 times in the past 30 years, December corn higher 16 times, and November soybeans higher for 12 times. In absolute values, the change in price is 11 3/4 cents for July HRW wheat, 10 1/4 cents for July SRW wheat, 7 cents for December corn, and 11 1/4 cents for November soybeans. Still, outliers are possible. 2022’s initial forecast sent wheat futures soaring, with KC July wheat rising 69 1/2 cents following the release that compounded on worries of lower production from the Black Sea at that time.
E15
After being once again left on the cutting-room floor during legislative wrangling over the farm bill, E15 legislation is slated for a House vote. Following farm bill passage last month, House Agriculture Committee Chairman Glenn “GT” Thompson said a vote on standalone legislation would take place on May 13. High fuel prices driven by the Iran war have intensified bipartisan pressure to pass the bill before the midterm elections, though oil-state opposition remains a hurdle.
It isn’t yet clear a vote will take place. Full passage would bolster biofuel demand at the margin, while a successful House vote would perhaps provide a timely psychological lift
for corn futures.
Trump-Xi summit
The postponement of the Trump-Xi meeting in mid-March sent soybeans into a tailspin, underlining the stakes surrounding the rescheduled summit. Soybean producers want to hear affirmation – from Beijing – that China is prepared to follow through on what the White House has said is a commitment to buy 25 million metric tons of soybeans per calendar year for the next three years. That’s less than what China was buying before the Beijing’s boycott of U.S. purchases that undercut the market last year. China has yet to affirm specific targets.
Soybean exports picked up as China resumed purchases after Trump and Xi struck a one-year trade truce in October, but continue to run behind the pace necessary to hit USDA’s current marketing year projection of 1.54 million bushels.
The good news is that such a commitment may be low-hanging fruit. What’s more, reports have portrayed Chinese negotiators as open to purchases of an array of agricultural goods,
including beef, poultry and non-soybean row crops – in addition to soybeans. Trade watchers say an agreement that would see China buy agricultural goods and aircraft alongside further tariff reductions may be the summit’s most likely outcome, with thornier issues kicked down the road.
A deal could trigger a relief rally, but risks remain. Friction over the Iran war, AI guardrails and Taiwan could make Xi reluctant to commit. Given how sensitive soybeans have been to China-related headlines, a disappointing outcome could quickly rattle the market.
The war and the market
The nosedive by crude-oil futures this past week dragged corn, wheat and soybeans back from new highs, raising questions about the staying power of a budding spring rally
that saw December corn briefly push above the $5 a bushel mark. The coming week will see market participants run a gauntlet of market-moving fundamental events that may
end up setting near-term direction.