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Ray Grabanski: Markets eyeing weather
Weather continues to be the story in the US, as winter wheat is failing in TX, and just-in-time rains prevent a complete disaster in OK and KS this week.
But still, much more rain is needed in western HRW wheat country to keep the crop in even below normal condition. The tremendous drought to today (with an extremely dry March and April) have devastated the crop in far western HRW wheat country. There will likely be a high abandonment rate of winter wheat crops there, sacrificed to try and get another crop to grow instead. It's likely, 20-25% of this winter wheat has failed.
Eastern KS and OK will fare much better, with plentiful rain recently in these areas such that winter wheat might even make normal yields there - that is, with the right weather from here on out. Perhaps sorghum will be replanted on failed winter wheat acres in the far western HRW wheat country?
Spring planting is just about as big a bust so far as the winter wheat crop, with US planting progress dismaly slow thus far in both corn and HRS wheat. In fact, most crops in the US are well behind normal planting progress. But, it's the disappointing pace so far in corn and HRS wheat that has the trade's attention thus far. It looks like another dismal week of planting progress this week, and we may finish April with the least planting progress ever in the US since records have begun.
That's a dismal story for the US 2011 crop thus far, with a likely cut in production numbers needed from all sides. More prevented planting acreage in the northern Plains is needed due to lower corn yields and HRS wheat yield projections due to the slow planting pace to date. Winter wheat yield estimates also need to be trimmed, as the crop is in dismal shape thus far.
Considering all the difficulty facing the 2011 US crop thus far, it's surprising that grains haven't rallied further this spring. After all, it's a much different picture than last year's early planting progress, and yet the market with very tight stocks to finish this year and going into next year should be extremely sensitive to the crop problems thus far. Makes you wonder what is holding the prices back?
Perhaps it is the recovery in the world's weather that is doing the trick, serving to limit US price gains in face of one of the worst spring disasters in our history. While US weather remains mostly adverse, South American production prospects continued to improve the past few months, with this month including nearly perfect weather to finish off the Brazil and Argentine crop harvests. Weather has also cooperated in the FSU countries, bringing much improved moisture prospects to the dry soils from last summer. Most of the winter and spring have included normal to above normal precip there, with cool temps that so far has allowed prospects to improve tremendously from last year. Expectations are for the FSU to recover to near normal production this year.
Europe also has seen moderate weather, including some bouts of warm/dry weather that allows planting progress to commence, but then intermittent showers follow which allows germination to begin of recently planted crops. Weather around the rest of the world, to summarize, it not nearly the disaster of 2010 - that is with the exception of the US. One can't help but wonder what will happen to grain prices when weather does turn around in the US!
Wheat and soybeans haven't even been able to go above the winter highs, and only corn has mustered the strength to run to new highs recently (and most of that strength was in the new crop Dec contracts, not the nearby May).
So, while a disaster has unfolded for weather in the US this spring, prices have been lukewarm to say the least. What lies ahead for the markets? One would think with the adverse US weather, prices can only go higher from here. But often times that's also when prices actually top! To summarize an often quoted phrase, "These are the best of times; and these are the worst of times!".
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