Grain markets walled off from flood impacts by mountains of supplies

Chicago | Reuters — A massive supply of grains has shielded the futures markets from the impact of flooding in the U.S. Midwest so far, with traders largely shrugging off this week’s reports of destroyed storage bins, swamped elevators and questions about if waters will recede in time for planting.

The problem is grain glut that has long weighed over commodities markets, said Tom Grisafi, a market advisor at commodity brokerage Advance Trading.

“If we lost 50 million bushels of beans, would it matter?” asked Grisafi. “If 100 million bushels of corn were gone, would it matter?”

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The answer in traders’ minds: no.

The U.S. Agriculture Department’s latest report on U.S. grain stocks showed that domestic soybean supplies stood at a record 3.736 billion bushels as of Dec. 1, 2018.

Corn stocks were 11.952 billion bushels, down 4.9 per cent from a year earlier but still the third highest ever, and wheat stocks were 1.999 billion bushels, the second biggest in 31 years.

Icy floodwaters are beginning to recede from Nebraska and Iowa but Midwestern states downstream on Thursday braced for a relentless surge along the Missouri River, with more rain expected.

Concerns about the flooding did prompt some investment funds, who are holding big short positions on grains, to begin unwinding some of those bearish bets on Thursday. But the gains remained muted, particularly in comparison to the market’s response to previous natural disasters.

So far this week, Chicago Board of Trade corn futures were up 0.6 per cent, soybean futures were up 0.1 per cent and wheat futures were up 0.6 per cent.

The timing of this week’s flood did factor a bit into the market’s response. Farmers in the affected areas are weeks away from starting up their planters.

“It is just a little bit early,” said Greg Grow, director of agribusiness at Archer Financial Services. “This becomes a bigger issue in about a month.”

Past floods

In mid-May 2011, floods in some of the same areas sparked a weekly rally of 11.4 per cent in corn, 10.8 per cent in wheat and 3.8 per cent in soybeans.

But at that time, domestic corn supplies were 15.9 per cent smaller than they are now. Soybean supplies were 39.0 percent smaller and wheat supplies were 3.4 per cent smaller.

Waning global demand for all three U.S. commodities also helped to douse rally attempts this week. USDA has pegged soybean exports for the marketing year to fall by 254 million bushels, due to the trade war with China.

In its last demand report, USDA lowered its usage forecast for corn by 100 million bushels, with 75 million coming from export projections and 25 million from decreased demand from the ethanol sector. The wheat export forecast also was cut by 35 million bushels.

— Reporting for Reuters by Mark Weinraub.

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