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Watch the Weather and Be Ready for a Sharp Rally

This spring has certainly been challenging for many producers, due to heavy rains delaying planting, a cool stretch with temperatures well below normal, and the Dakotas’ dry weather. Each spring has its challenges. In most years (despite many adversities), the crop eventually gets into the ground. As temperatures warm, the crop begins to grow, and ratings improve on a weekly basis. It’s really the weather after spring (starting about mid-June) where the rubber meets the road, as far as production prospects are concerned. For many, this year’s spring was so adverse, and the crop off to a poor enough start, that even average yield with good weather from this point forward may be optimistic. 

As far as variables that affect price, weather is by far the most dominant. While exports can shift a few hundred million bushels from year to year, and feed usage can vacillate in a somewhat predictable range, weather is the key driving factor for corn, soybean, and wheat supplies. In 2012, the final corn production figure was 25% below the first yearly crop estimate. Dry weather that year damaged crop production potential to the point where corn prices had to rally to over $8 in order to curb demand and, in effect, ration supply. In 2012, we also saw the beginning of a weather market established by mid-June, as continuous dry and hot conditions engulfed the Midwest. Could this year be similar? 

Any given year is a challenge for producers. One can never know exactly what the weather will be. A general assumption is that in most years, weather will be adequate enough, and that could be the case again this year. Yet, should weather become a factor, both buyers and producers of row crops should recognize the consequences of adverse weather. With corn carryout projected somewhere between 2 and 2.3 billion, a 10-bushel drawdown in yield coupled with a reduction of 4 million acres could cause the corn supply to rapidly decrease. Consequently, prices may have to move upward to ration inventory.

Many different scenarios could develop in the months ahead. We encourage a balanced approach to marketing. We’ve been cycling this message throughout the winter months in previous articles. We feel confident that when prices rally, aggressive selling should occur, as large inventories from last year’s record crops still need to be marketed. Be ready for a sharp rally, as it could occur in weather-driven markets. The key is to have ownership so that you’re rebalanced, and you can take advantage of higher prices to pull your overall average price upward.

The window between June 15 and August 15 will tell the story for this year’s row crops in the U.S. and Northern Hemisphere. The majority of the world’s corn is produced in the Northern Hemisphere, so as weather goes, so likely will prices. Other important areas to watch for crop development and weather are China, Europe, and the former Soviet Union countries, where key corn production will occur over the next 60 to 90 days. Are you ready? 


If you have questions or comments contact Top Farmer at 1-800-TOPFARM, ext. 129, or ask for Bryan Doherty.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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