Recession worries dampen prospects for crop price rally

Crop markets are focused on two things: the latest production forecasts as the Northern Hemisphere harvest of spring-seeded crops begins; and worries that the fight against inflation will push world economies into recession.

Wheat and oilseed futures are steady, trading within a range for a month, while corn futures modestly rallied from the July low.

Several regions of the world have or are experiencing extreme weather this summer that has damaged crop production, but the potential for these events to ignite a global crop price rally is offset by signs that economic growth is being extinguished by inflation-fighting interest rate hikes.

An example of these two forces is seen in the Chicago corn futures market.

Several recent private crop tours and surveys show American corn yield potential lower than the United States Department of Agriculture August forecast of 175.4 bushels per acre.

The ProFarmer tour pegged yield at 168.1 bu., Gro Intelligence yield model had it at 167.2 and Allendale producer survey put it at 172.4 bu.

These forecasts are all bullish for prices. Also, there is increasing confirmation that the excessively hot summer in much of Europe pushed the corn crop there to 60 million tonnes or less, down from about 71 million tonnes last year.

Worries about corn production helped lift the December corn contract from the July 22 low close of US$5.64 1/4 to an Aug. 29 high above $6.80.

But further rises stalled after U.S. Federal Reserve chair Jerome Powell made it clear at the central bank’s annual symposium in Jackson Hole, Wyoming, Aug. 26 that fighting inflation remained its top priority even if it means pain for businesses and households.

Stock markets fell hard in the days following the Fed meeting.

Analysts expect the Bank of Canada to hike interest rates Sept. 7 and the Fed will likely do it Sept. 20-21.

Worries about the global economy are compounded by Europe’s energy crisis as it faces soaring natural gas and electricity prices because Russia is restricting gas exports. And China’s economy is battered by intense heat and drought in the south that are straining its energy grid while its “zero COVID” policy keeps putting large areas of the country into lockdown, hurting consumer and business confidence.

While corn markets saw gains in August, wheat markets were mostly steady near the levels they were last fall and early winter before the run up triggered when Russia invaded Ukraine.