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Weather starter: Drought fears & WASDE numbers
Today, we await a much anticipated WASDE report. Ahead of this release, the markets this morning show wheat on the decline, flirting with 574 while March soybeans remain buoyant in the 1330's. Corn is steady in the lower 440's. Recently, non-commercial traders have been reducing their net long positions in wheat, while increasing net long positions in soybeans.
A few of the weather-related factors impacting the markets this morning include a wetter 11-15 day outlook for the Plains. A quick look at the drought monitor indicates soil moisture across HRW wheat areas is lacking significantly. A large area of severe drought conditions lingers across western Kansas and Oklahoma.
Looking at some overnight model runs, it appears the 1-5 and 6-10 day period will offer little in the way of precipitation as the Central/Southern Plains will be on the lee side of an upper ridge, which typically favors dry weather as the air at the upper levels sinks to the surface. It does appear a marginally wetter pattern may unfold during the 11-15 day timeframe.
The ECMWF is most agressive in forecasting a normal/slightly wetter than normal pattern for the Central/Southern Plains while the GFS keeps the 11-15 day timeframe mostly drier than normal. Typically we favor the European model in this timeframe, although confidence on which model solution is right is low. 500mb verification scores have shown the European model to be outperforming the GFS as of late which does lend some additional support for a wetter pattern for the 11-15 day.
Looking at soybeans, the expectation ahead of the WASDE is that the USDA will reduce its supply estimates, which is helping sustain last week's gains. Dry weather in central Brazil may also be acting as a source of support. Looking at the forecast, dry weather will continue through the next 5 days across central brazil. However, the 6-10 day timeframe is trending wetter with near normal rainfall forecast across a significant portion of Argentina and Brazil for the 11-15 day timeframe per the latest European model run.
The latest GFS is notably wetter than the European model, showing above normal rainfall for a good portion of central Brazil. Either way, heat and drought induced crop concerns should ease somewhat over the next several days as more favorable weather returns to central Brazil. However, some reduction in crop yields is likely from northern Parana northward into Minas Gerais where long-term rainfall has been below normal.
High-resolution vegetative health indices also indicate poor crop health across these areas, supporting the possibility for crop reductions. Across Mato Grosso, the trend will continue for slightly wetter than normal conditons across western areas with near/drier than normal weather to the east. A combination of the near term forecast and current soil mositure indicates relatively good weather for harvesting/planting of second-crop corn.
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