Agricultural commodities: grains, softs, weather and harvest reports

What you will learn

• The main agricultural groups and where they trade
• How crop calendars in both hemispheres create periods of higher uncertainty
• How area and yield turn into production and why stocks-to-use matters
• How to read weekly crop condition and harvest progress data

Explanation

Main groups and exchanges

• Grains and oilseeds: corn (maize), wheat, soybeans, rapeseed. US contracts trade on CBOT in cents per bushel; Euronext trades milling wheat, corn and rapeseed in euros per tonne.
• Softs: coffee (arabica and robusta), cocoa, sugar, cotton and orange juice, mainly on ICE exchanges in New York and London.
• Livestock: for example live cattle and lean hogs on CME.

Crop calendars

Each crop has a planting, growing and harvest season, and the two hemispheres are offset:

• US corn and soybeans are planted roughly April–June and harvested roughly September–November.
• Brazilian soybeans are harvested roughly January–April; a second corn crop (safrinha) is planted after the soybeans and harvested around mid-year.
• Winter wheat in the northern hemisphere is sown in autumn and harvested in early summer.

Uncertainty tends to be highest in critical growth windows, for example US corn pollination in July. Traders call this a weather market: prices react to every forecast change. After harvest, the size of the crop is largely known and attention moves to demand and the other hemisphere.

From area and yield to production

Production = harvested area × yield

Area is decided at planting, based on expected prices of competing crops and input costs such as fertiliser. Yield (tonnes per hectare or bushels per acre) depends on weather, seeds and inputs. A small change in yield over a large area changes production a lot.

The key balance measure is stocks-to-use = ending stocks ÷ total use. When stocks-to-use is low, there is little buffer, and prices historically reacted more strongly to supply problems. This is an observation from past markets, not a fixed law.

Weather, policy and currency

• Weather: drought, heat, frost or heavy rain at harvest. El Niño and La Niña, recurring Pacific climate patterns, tend to change rainfall in regions such as Australia, South America and Southeast Asia, but their effects vary from event to event.
• Policy: export restrictions, tariffs and biofuel mandates (corn ethanol, rapeseed biodiesel) shift supply and demand.
• Currency: a weaker Brazilian real raises local-currency prices for Brazilian farmers, which can encourage them to sell more.

Weekly crop reports

The US Department of Agriculture (USDA) publishes Crop Progress every Monday at 4 p.m. US Eastern Time from about April to November. It shows planting and harvest progress in percent compared with the five-year average, and condition ratings from "very poor" to "excellent". Markets watch the share rated good/excellent. In Europe, the EU's MARS crop monitoring bulletins publish yield forecasts. Monthly balance sheets follow in lesson 6.

Worked example

Hypothetical example: a dry summer in a large corn producer. Assumptions: harvested area 35 million hectares, expected yield 11.0 tonnes per hectare, expected ending stocks 40 million tonnes, total use 380 million tonnes.

1. Expected production: 35 × 11.0 = 385 million tonnes.
2. Expected stocks-to-use: 40 ÷ 380 = 10.5%.
3. Drought lowers yield to 10.5 tonnes per hectare: 35 × 10.5 = 367.5 million tonnes.
4. Loss: 385 − 367.5 = 17.5 million tonnes, or −4.5%.
5. If use stays at 380, ending stocks fall to 40 − 17.5 = 22.5 million tonnes; stocks-to-use = 22.5 ÷ 380 = 5.9%.

A 4.5% yield loss almost halves the buffer. In reality, higher prices would reduce use (demand rationing), so the final stocks would likely fall less. Excluded: imports, exports, quality losses and price effects on planting next season.

Common mistake

Practice activity

Hypothetical data.

1. A wheat exporter harvests 20 million hectares with an expected yield of 3.5 tonnes per hectare. Calculate production. Then calculate production if yield falls by 8%.
2. Expected ending stocks are 12 million tonnes and total use is 75 million tonnes. Calculate stocks-to-use before and after the production loss in question 1, assuming use is unchanged.
3. It is February. Which country's soybean harvest is underway and therefore most important for soybean prices right now?

Key takeaways

• Production = area × yield; small yield changes over large areas move production a lot.
• Stocks-to-use measures the buffer; low ratios have meant stronger price reactions in the past.
• Crop calendars in both hemispheres decide when weather matters most.
• Weekly condition and progress data show how the crop develops between monthly reports.

Next step

In the next lesson you learn to read the main supply and demand reports from the EIA, IEA and USDA and to judge them against expectations.