September’s full Harvest Moon marks a turning point in the growing cycle in the Northern Hemisphere. Farmers are beginning to harvest crops in earnest, particularly the major crops of corn and soybeans. According to the latest USDA World Agricultural Supply and Demand report released last week, this year’s harvest is expected to be immense, due to record per acre yield projections for both of the big row crops. This will result in massive U.S. grain inventories not seen in several years.
Prices are already at multi-year lows, hovering near the cost of production, especially for corn and soybeans. This could provide opportunities for investors in the coming weeks as the harvest progresses, supplies build, and prices test the ultimate downside limits of their long-term trading ranges.
Corn, for example, has a 17-year trading range of about $3.50 to $7.50 per bushel. Over the last 17 years, the apparent futures price equivalent breakeven trading range of corn has been approximately between $3.50 and $4.00 per bushel. Over that same time period, corn has rallied three times from around the $3.50-$4.00 area up to between $7.00 and $8.00 per bushel. As the harvest looms, corn futures are right now trading around $4.00 per bushel. An onslaught of newly harvested supplies could potentially push corn prices toward the bottom of their historic 17-year trading range. This could provide opportunities for investors as prices may push lower in the coming weeks.
Soybeans markets are also interesting, currently trading around $10.00 per bushel. A look back at a 17-year price chart of soybean futures prices shows an apparent average futures equivalent break-even price closer to $8.00 or $9.00 per bushel. This year, the U.S. is expected to have a record-high soybean crop, which comes on the heels of a record, or near record Brazilian soybean harvest from last year. Brazil’s numbers for last year’s crop will be finalized soon. Keep in mind that the southern hemisphere harvests at different times than the northern hemisphere, so current global supplies of soybeans, which are more than adequate, could continue to exert price pressure on U.S. soybean farmers. This may drive soybean prices to levels not seen in four or five years, possibly even below $8.00 per bushel.
Wheat prices, on the other hand, are somewhat elevated compared to historical levels. This is primarily due to uncertainty surrounding the Russia-Ukraine war, as over 30% of global wheat exports come from the Black Sea region, most of which originate from Russia. While there is currently no threat to those exports, the world is in its fifth consecutive year of a shrinking global wheat balance sheet, meaning for five years in a row the world has consumed more wheat than it has produced. Though global wheat stocks are adequate at this time, any disruption—whether from bad weather or a violent interruption of exports from the Black Sea—could pose problems for wheat prices in the future.
As a result, wheat prices have been more elevated than usual, running $1.50 to $1.70 per bushel higher than corn. Typically, wheat prices are only about $1.00 higher than corn, and this wider gap may persist until uncertainties in the Black Sea region subside.
It’s also noteworthy that hedge funds, which have been short grains for quite some time, are starting to cover their short futures positions. Grains have been in a two-year bear market since the wartime highs of 2022. As grain prices approach their cost of production once again, hedge funds are recognizing that the downside risk from here is limited. In fact, the risk-reward ratio at harvest lows historically favors bullish price moves and higher grain prices, if history is any guide.
What’s relevant to investors now is that the full Harvest Moon in September signals a critical period. Over the next 4 to 6 weeks, as the harvest continues in the northern hemisphere, investors should watch closely for possible opportunities as grain prices potentially hit their 17-year historical lows.
September’s full Harvest Moon, with a partial eclipse visible in some areas, marks a significant turning point in both the harvest year and the investing cycle. While farmers are busy at work harvesting their year’s crop, investors should monitor the grain markets closely for potential new lows in prices between now and October’s full Hunter’s Moon. Exciting times could be ahead in the grain markets.