Keep eyes to the sky
In yet another flip-flop of weather forecasts, the past two days weather forecasts have shifted from one calling for warm/dry weather in the Corn Belt to one of wetter than normal with cooling temps over the next two weeks.
This is a critical time for the corn and soybean crops, as corn is in the process of filling cobs while soybeans are in perhaps an even more critical period - pod filling. If this recent forecast is correct, it could reverse some of the damage done to crops the past three weeks - and couldn't come at a more critical time for crops.
For the past three weeks, crop conditions have been declining for corn and soybeans, with Pro Ag yield models dropping below both 'trend' and USDA projections the past few weeks for the first time all year. Really, this is the first big threat to the 2007 corn/bean crop. On Monday, July 30, crop conditions declined for most all major crops, with corn conditions down 4% in good/excellent ratings the week ending July 30, soybeans (-3%), and HRS wheat (-7%), with Pro Ag yield models dropping for all 3 crops. This was the biggest grain yield decline in 2007, with the Pro Ag projected corn yield down 1.5 bu/acre to 150.2 (the lowest of 2007), soybeans down 0.31 bu/acre to 41.8 bu, and HRS wheat down 0.72 bu/acre to 39.3 bu. Only HRS wheat is still suggesting yields above USDA July projections, so with this recent decline it might lead USDA to leave most yield projections unchanged in the August report, while most analysts had been expecting improvement.
With adverse weather forecast for the next 2 weeks just 2 days ago, it could have been a return to bull markets in all grains. But the past 2 days US weather forecasts have changed! In today's weather runs, it's surprising how much precip is included in the 6- 14 day forecast, with above normal precip now forecast for almost all of the Corn Belt. This couldn't come at a more critical time, as it just might salvage a soybean crop that was on the brink of pushing towards sub-normal yields. If weather had continued through August as it had been in late July, we could have had a replay of the 2003 crop year, when soybeans quickly went down in yield potential, leading to $10 futures by the following spring (doubling prices in 6 months).
Anyone who doubts what impact this could have on prices only needs to look at some recent price movements. Soybeans dropped over $1 in just two weeks with some improvement in crop conditions in mid-July. At that time, forecast hot dry weather disappeared, and more rain fell and in more places than was forecast at the time we hit summer highs of $9.495 November soybean futures on July 13. By July 27, prices had dipped to $8.34 for a net drop of over $1.10! There is no shortage of volatility in these markets as indicated by the 2 week soybean price change of over $1.10, and one only has to look at the wheat market for recent signs of bullishness in grains. Wheat prices rallied to new highs last week ($6.64 Sept. Chicago on July 26), ironically just a day before the soybean bottom. In very unusual fashion, grains are not moving together in price as the spurts of bullishness are not the same in all commodities.