This week, I had the opportunity to observe weather conditions across a wide corn and soybean growing area. The purpose of the trip was to speak to a group of Ag Bankers in Springfield, IL.
Sharon, my wife, went with me because we have relatives in Illinois and also in Ames, IA. It was a good opportunity to visit with people we had not seen for a while as well as view crop conditions.
We drove down Interstate-29 to St Joseph, then went east on Hwy 36. I knew that crops in the Missouri bottom would not look good because of the flooding in May. I was somewhat surprised that northern Missouri crops were as far behind as they were. Tractors and planters were running late Saturday night. I woke up before dawn Sunday morning to the sound of thunder and rain hitting the hotel window. Rainfall ranged from one inch to three inches in a short time, so those acres that were not planted by Saturday night are probably still not planted.
East of the Mississippi it was obvious that the area of heavy rain was behind. Not many miles passed before we saw corn that was stressed from dry weather. Many soybean fields had spotty stands. That situation continued across Illinois from Springfield to Champaign, then to Peoria and finally to Quad cities. As of yet, production potential has probably not been hurt much, but if they do not get rain by the end of next week there will be a lot of damage.
Conditions did not change until we got to Grinnell, 50 miles east of Des Moines. By the time we got to Ames, we were seeing flooded areas in flat fields. It was obvious that conditions had been too wet not long ago. In some fields there was still water standing. As we drove home Thursday afternoon, we continue to see spots in fields across western Iowa that had been too wet to plant at the normal time. I do not usually get too concerned about yield reductions from wetness at planting time because the acres affected are usually small and at least there has been rainfall to recharge subsoil moisture.
Here in eastern Nebraska our crops are very good. We had three very heavy rains in April and May. The last rain was two weeks ago today, so wet spots have dried out. Hay producers are finally getting a chance to harvest that valuable crop. Sprayers are finally getting caught up with the backlog of applications.
The market is obviously concerned about the weather. As usual with these rallies, it is difficult to sell into prices that go up almost every day. Experience tells that situations like we have today are pricing opportunities. Put options are one way of setting a price floor without being committed to delivering grain that you might not produce. Selling cash forward contracts at levels up to your crop insurance guarantee covers the futures risk. However, the basis is still a concern when you sign a contract to deliver.
One red flag that I see in this whole optimistic outlook is that the local basis widened out five cents while I was gone. This is a sign of lessening demand and/or increased farmer selling. I sold an additional quarter of my old crop production before I left last week. I missed the top by 20 cents. However, the net price is the highest for any corn I have sold since 1996.