Summer’s market factors: weather, weather, and weather, analyst says
The grain market tipped over to the negative side last week, and continued that trend so far this week.
All grains (except HRS wheat) failed to run to new highs last week in a run that resuscitated the rally. Ironically, now the market is dropping due to a forecast for cooler/wetter weather, even while there is virtually no rain in the Corn Belt forecast this week. That will surely lead to another drop in crop conditions and yield potential, following a drop this week as well. It’s interesting to see the market drop while current weather is adverse – but this is a futures market, and is always looking ahead.
Today’s weather forecast now has widespread rain in the six- to seven-day forecast, but still quite dry the next five days. Thereafter, the eight- to 14-day precip forecast is for above-normal precip and below-normal temps… probably a perfect forecast moving into July (if it sticks around). While markets were down sharply yesterday indicating the tops are probably in on charts, the U.S. crop continues to deteriorate on paper with the crop progress reports.
Specifically, the corn ratings dropped 4% to 68% rated G/E, with the Pro Ag yield model dropping 2.3 bu/acre to 175.4, now a below trend (176.95 bu) yield. That could spell trouble for the U.S. corn crop should the weather pattern not change. Soybeans are 94% planted, with ratings also down a whopping 5% to 62% rated G/E. The Pro Ag yield model (still relatively preliminary) dropped a huge 0.93 bu/acre to 48.46 bu – an extreme weekly decline and well below trend (49.83). Given these numbers, USDA would have to cut yields 1.4 bu/acre or about 130 mb, and we don’t have the carryout to do it. Weather must change its pattern, because a few more weeks like this and prices would be forced to go to new highs on the new-crop soybeans.
Winter wheat is now 4% harvested vs. 15% average so we are behind average with the wet weather, but conditions also declined 2% to 48% G/E, with the Pro Ag yield model -0.31 bu/acre to 51.38 bu vs. 50.56 trend. That also is a fairly high yield decline for wheat this late in the growing season; it completes the trifecta for all three major crops yield model declines last week. That, if it continues a few weeks, could trigger another run at new highs.
Note too the decline in topsoil moisture of 4% to 62% rated adequate/surplus, with subsoil down 3% to 61% rated adequate/surplus.
These are not good signs for going into summer. While the next five days remain dry, we hold out hope for the 2021 crop that weather forecasters are not just guessing when they forecast a return to cool/wet conditions in the U.S. If we continue to suffer from drought (hot/dry) weather into July, we could have some more excitement in grains. We note that July soybeans recovered in overnight trade from early losses: Will the other grain contracts do the same today?
We are soon entering the critical phase in July where reproduction occurs in corn, with soybeans following just a few weeks later. This is the time when yield potential is primarily determined in corn and soybeans, which are about 60% of U.S. production of every type of plant. So, this is an extremely important time for the grain crop production. We always say that in July and August there are three important market factors: 1) weather, 2) weather, and 3) weather! So strap on your boots, it could be an interesting summer.
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country. See http://www.progressiveag.com for rankings and link to data from Top Producer Magazine and Agweb.com.
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