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Rally time, or what?
The market has rallied as of late in grains, with gains again this week that are threatening a breakout of the recent downtrend that has been well established since last September. Soybeans especially are on the verge of a breakout, with November new crop showing strength Tuesday following the long weekend, with 40-cent gains Tuesday.
That potential breakout corresponds to wet weather forecast for the majority of the Corn Belt for the coming week that may stall planting progress. Recall we fell well behind normal into May 13, but then the next week we nearly caught up to normal progress with a fantastic week of planting, tying the record for corn planted in one week (43%).
We continued to catch up to normal planting this week, now at 86% completed with corn planting, just 4% behind the normal pace of planting (vs. last week's 8% behind normal). States that continue to struggle with planting (more than 10% behind the normal pace) include Iowa (85% planted vs. 98% normally), Minnesota (82% planted vs. 95% normally), North Dakota (72% vs. 82% normally), and Wisconsin (64% vs. 85% normally). These states are all northern Corn Belt states, and they are in line for more precipitation this week. However, the rain forecast has pushed the heavy rain farther south in the last 24 hours, essentially leaving only about normal precip for most of this area (about 1 inch forecast the coming week). Southern Iowa and southern Wisconsin, however, are forecast on the high side at 1- to 2-inch amounts, while Minnesota and South Dakota (and northern Wisconsin) are forecast to see only .5 to 1 inch.
Minnesota could have a good week of planting this coming week, and alleviate some of their late planting woes. But southern Iowa and Wisconsin will continue to struggle, and may lose some corn acres to soybeans in these areas. That is bullish corn, but bearish soybeans, as these areas typically will plant no matter how late it gets (very little prevent plant comes from this highly productive area).
North Dakota and northern Minnesota, however, are different stories as producers there can collect from $200 to $400 per acre for prevent-plant crops, and already this first final planting date has arrived in North Dakota (May 25). There is little incentive to continue to plant crops once the final planting date arrives in this area, as you lose 1% per day of coverage planting late, and the economics just don't justify planting as the risk of frost accelerates every day. So to spend the money planting a higher risk crop when the PP payment is already profitable is low.
Soybean planting progress continues to lag normal by 17% at just 44% planted nationally vs. 61% normally. States more than 10% behind normal include Arkansas, Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, North Dakota, Tennessee, and Wisconsin. Some of these states are more than 20% behind normal (Iowa, Kentucky, Minnesota, Mississippi, North Dakota, Tennessee, and Wisconsin). These are the states that are most concerning. But at the same time, soybeans can be planted in these states all the way to June 10 without much expected yield reduction. However, early planting typically leads to higher yields, so the top end is likely off these potential yields.
Other crops include sugar beets at 94% planted (just 3% off the normal pace); sunflowers only 9% planted vs. 26% normally; HRS wheat 79% planted vs. 86% normally; and barley 78% planted vs. 87% normally. Pasture conditions continue to improve from drought-reduced levels, now at 42% rated G/E vs. 38% last week and only 33% two weeks ago. Pasture may now be able to provide more of the feed needs of livestock like cattle.
Even though the market has rallied on the last planting to date, our previously disastrous spring has been mostly alleviated by the excellent planting progress between May 13 and 20. We'll need one more big push to finish planting grains, though, as we currently are only maintaining the pace of normal planting, and there are some wet conditions ahead for southern Iowa, northern Missouri and Illinois and Indiana/Ohio, eastern Kansas, and southern Michigan. With Iowa furthest behind normal planting, this is the area of most concern.
However, with the cold/wet spring, we certainly have alleviated any lingering concerns about drought from the devastation of 2012. Now, most all states have adequate to surplus moisture, so if this crop does get planted, we now have the soil moisture to provide a good production year and potential return to normal yields. We likely will lose 1 million to 1.5 million acres to prevent plant in North Dakota and northern Minnesota, some of which will come from HRS wheat and corn acreage. But overall, the outlook for this year still remains negative, with prices expected to still dip once planting gets completed.
Specs and hedgers can now sell corn, soybeans, and CBOT wheat again, putting on hedges for 2013, 2014, 2015, or 2016 crops. Downside price targets remain $4.50 December corn, $10 November soybeans, and $6 Chicago July wheat.
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