With improved weather, corn, soybean rally could end, analyst says

Early planting, cool season equals a good crop year, analyst says.

In January, we had all sorts of supply/demand problems to deal with, including a drought in both South America (SAM) and the U.S.

Both geographic areas had weather concerns. For Brazil and Argentina, the weather was threatening corn and soybean crops with dire consequences.  Both were in the grips of significant drought.  In addition, U.S. weather was in a dire drought with temps about 10-20 degrees above normal for about 5 months, and rainfall absent almost everywhere.  This was a severe drought for the U.S. and South America, and it was worrying the market.  

Flash forward to April, and cooler/wetter weather had USDA hiking SAM production estimates for soybeans above trend yields in Brazil.  

U.S. winter wheat crops greatly improved to above average due to improving rainfall, and soil moisture levels are also almost perfect in the majority of the Corn Belt.  That is not the type of weather change that compels prices to go higher and continue an uptrend.     

Weather forecasts have turned to cold and dry in the Corn Belt the next two weeks, with below normal precip in the east the next seven days, but above normal in some western states.  The 8-14 day forecast is cold and dry, with below normal precip mostly and below normal temps.  This cold/dry forecast will allow planting to progress, but it won't be the rapid pace earlier expected.  But on the other hand, that also eases drought fears because you can't have a drought in a cold weather year.  

If the crop gets planted early (as it appears so far) and we have a cool year, usually that means an above average crop.  Frankly, the weather developments the past month have diminished the risk of drought and made 
it possible that an above average crop can be produced. 

Crop progress reports out, Monday, reinforce the idea that weather is improving crop potential, especially winter wheat crops.  On Monday, the USDA report showed its an early planting year, so far, in HRS wheat (5% ahead with 11% planted vs. 6% normal), barley (2% ahead with 13% planted vs. 11% normal), sugarbeets (10% ahead as 17% planted vs. 10% normally), oats (6% ahead with 39% planted vs. 33% normal), and other cool season crops.  

But, corn (1% ahead with 4% planted) is just getting started as soils are still somewhat cold and wet in many areas.  Cotton is 8% planted, 1% ahead of normal while sorghum is 14% planted (3% behind normal).  

The soil moisture situation has improved considerably from late last fall (67% rated adequate/surplus topsoil and 64% subsoil), nearly ideal for planting vs. the extremely wet conditions we had last year at this time (both over 90% adequate/surplus last year).  

Winter wheat is 53% rated G/E (the same as last week), but yield models now showing above trend yields likely (0.65 bu above trend at 51.2 bu vs. 50.56 trend).  That's a dramatic turnaround from the drought last fall, and the extremely cold weather this winter.  It's likely the winter wheat crop will be above normal as its been improving the past few weeks.  

Soil moisture levels also improved nationally rather dramatically since mid-January, and the weather trend since then is definitely bearish.  That makes it hard for the market to rally even though exports are still strong (about 60 mb corn last week, 12 mb soys, and 17 mb wheat).  The world is not going to run out of grain before next year's harvest - even with China feeding a lot of grain to their livestock.  

As we've been saying the past few days, essentially, the improvement in SAM and U.S weather since mid-January has helped the world to dodge a bullet in world grain supplies.  The improved weather healed the Brazilian crop (and to a lesser extent Argentine crop), and also helped alleviate the risk of drought in the U.S.  

Today, U.S. conditions look closer to normal and the drought weather pattern has ended.  Combined with what looks like an early planting season, the U.S. now has prospects that could include a bumper crop in 2021 with the right weather.  Of all the states, North Dakota is the sole state still at risk of drought in 2021 - so HRS wheat still has a potential bull market run in 2021.  

But so far, the corn/soy bull market rally could certainly end.  

We have sold a lot of product in the past six months, and like our position of 50% priced corn and 20% priced soybeans going into the new 2021 year.  If we get an opportunity, we'd like to advance oilseed sales to near 50% as well this planting season as profit opportunity knocks!

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Ray can be reached at raygrabanski@progressiveag.com.  
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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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