The grain market narrative is shifting once again, influenced by a mix of unpredictable forces. The USDA reports released this past week injected fresh optimism, giving traders a glimpse of potential outcomes for the 2025 season. As expected, the classic strategy of “selling the rumor and buying the fact” played out across all three major grains. However, wild cards like money flow, weather, and demand continue to shape the market’s direction. While the renewed sentiment is encouraging, uncertainty still looms — so stay adaptable and prepared for potential risks.
Historically, the Prospective Plantings and Quarterly Grain Stock reports released at the end of March are known to be “market movers.” These reports often contain “surprises” that can lead to a shift in trend — good or bad, positive or negative. This year, however, the reports were relatively uneventful, with corn and soybean acres and stocks aligning closely with trade estimates. In my opinion, that may have been the “surprise” of the report. Again, historically, it doesn’t happen. Given the 24-hour market action following the report, it appears the reports were already priced into the market. That, again, may have just been enough — at least for the funds.
Money flow remains a crucial factor. Remember, the funds are only interested in following the trend, meaning they need to be on the “right side” of the market’s direction. In recent weeks, the funds have notably reduced longs and maintained short positions. According to last week’s Commitment of Traders report, the funds are holding short positions in most grains, except for corn. This was likely done for a couple of reasons. First, there was notable risk of grain markets reversing lower based on trade expectations leading up to the USDA reports. Tariff concerns likely influenced this positioning as well, prompting funds to reduce risk and position themselves ahead of a potential downward trend. Secondly, with the reports coinciding with the end of the month and quarter, funds may have taken profits from their long positions and repositioned for the start of a new quarter. As a result, money flow was largely “betting” on a lower trend.
The funds, however, were “April Fooled” when grain prices rallied the day after the USDA reports were released. This occurred at the beginning of a new month and quarter, with increased trade volume signaling potential new long positions entering the market. Could the seemingly dull reports have sparked this buying? It seems likely, especially given the ongoing risks that the market faces. In my view, money flow is just one of three “wild cards” influencing the market. The other two? Weather and demand. Interestingly, both of which can, in turn, affect money flow.
Given the recent trade action, it's clear there is little risk or weather premium built into grain futures. Should there be? In my opinion, yes. The heart of the U.S. planting and growing season is still ahead, and seasonal market trends remain in play. With the USDA reports now behind us, traders and market participants need to assess the risk going forward. For soybeans and wheat, tighter acreage expectations support the need for risk premium. However, that argument can also be made for corn despite high acreage estimates. Large acres mean more fringe acres will be planted, which does not support a trendline national yield. With that, the estimates released this week don’t necessarily mean record production will happen.
Remember the 2012 season — large acres didn’t equate to large production. I'm not a meteorologist, so I will not start the “drought 2025” debate. I have heard the rhetoric about U.S. summer weather — it's the same as every year. A drought may or may not occur. If it doesn’t, and the corn acres do get planted, production will likely still be larger than last year. On the other hand, if the season trends drier, the market will respond accordingly. At this point, the drought talk is getting ahead of itself. There is plenty of risk going into the growing season but remember, the crop is also not planted yet. Meaning, the “printed” acres this week — for all crops — remain speculative. Spring weather matters. Growing season weather matters. Final production matters.
The final “wild card” is demand. Tariffs are a major topic at the moment but demand extends beyond tariff headlines. Based on the latest Quarterly Grain Stocks report, demand expectations are being met. In fact, grain “disappearance” is running 1-3% above last year during the same period which includes exports and domestic usage for corn, soybeans and wheat. Exports continue to run ahead of last year’s pace for all three major grains, which has some analysts touting “front loading” tariff concerns impacting future demand. I disagree. If export demand was truly being “frontloaded,” one would expect to see a drop in export demand following the continued rhetoric. That isn’t the case with global demand remaining strong.
Regardless of the ongoing tariff rhetoric, domestic demand also plays a crucial role. This past week, biofuel markets — including corn and soybeans — received significant support from a coalition of oil and biofuel groups meeting with the U.S. EPA to propose higher biofuel blending. If a two-year agreement is reached, it could significantly support domestic demand for oilseeds and corn. Just another demand avenue worth monitoring in the weeks ahead.
In conclusion, while grain markets received renewed optimism following the recent USDA reports, there are still plenty of uncertainties ahead. Factors like money flow, weather, and demand will continue to play pivotal roles in shaping market trends. As we move further into the planting and growing season, it's essential to remain vigilant and adaptable, keeping a close eye on any potential shifts in weather or demand that could alter the market's trajectory. The risks may be significant, but so are the opportunities — those who stay informed and prepared will be best positioned to navigate the challenges and capitalize on what’s to come.
Allison Thompson is a market analyst with The Money Farm in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family's Mahnomen, Minnesota, grain farm.