Grains: Midsummer Rallies Turn to Fall Nightmares

Almost like clockwork for the past five years, corn rallied in the spring and early summer before topping out between May 30 and July 15. Similarly, wheat experienced midsummer rallies that were especially notable in 2015, 2017, 2018 and this year. In the case of wheat, the peaks came between late June and early August. In each case, these rallies related to concerns about the state of the North American planting and growing season. This was especially true this year when weather in the US Midwest was especially inclement, with extensive flooding delaying planting. 

Yet, in each case the price of corn and wheat came crashing down as the growing season wore on and both acreage and yield turned out to be not as bad as feared, as was evident in the August 12 crop report and subsequent 5% single-day declines in corn and wheat prices. The crop report showed severe, localized damage to crops in certain areas: Southeastern South Dakota and Southwestern Minnesota, parts of Northern Illinois and Northeastern Ohio. Other regions were showing more average production, and certain areas like Northern Iowa and parts of Kansas and Nebraska even showed higher production.

Corn’s inability to sustain a summer rally is intertwined with soaring production in the Black Sea region and South America, where the global cost of production is increasingly being determined. Over the past decade, South America went from exporting the equivalent of 2% of global corn production to about 5.5% – rivaling the US.  Meanwhile, the Black Sea region has gone from essentially producing a domestic-only supply to exporting the equivalent of 3% of global corn production (Figure 1).