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Good Ratings, But a Lot of Crop-Weather Ahead, Analyst Says

Grain market follows weather, China trade tariffs.

Grains made a quick reversal from trading higher, yesterday morning, to running sharply lower on news that the president was still putting together plans to put tariffs on $50 billion worth of Chinese imports.  

The market has remained down on that news, and overnight went even lower after USDA released the latest planting progress report and conditions as planting progress has advanced past normal stage. Conditions were higher in winter wheat and were rated quite good in the initial corn ratings.  

Winter wheat ratings rose 2% to 38% G/E, an unusual result to rise during this time of year, with 73% of winter wheat headed vs. 75% normally. The Pro Ag yield model rose again to 48.08 bushels per acre, up 0.35 bushel per acre in another sharp rise in yield potential for all winter wheat. The SRW states are really improving while the HRW wheat states continue to suffer, but overall the winter wheat yield potential has been rising for the past six weeks (up from a low of 46.7 on April 17).  

Not only is winter wheat yield rising, but also corn conditions in this initial week of ratings came in at 79% rated G/E, much better than last year’s 65% rating. This could prove indicative of a high yield potential in corn, in spite of a late start to planting and a lack of rain in the Corn Belt so far this spring.  

Soil moisture levels were high to start the year, though, and with a great stretch of planting in the first three weeks of May, this crop does have potential based on early conditions if only the weather can produce some rain this summer. The initial early yield model on corn is at 173.4 bushels per acre, above trend of 171.4 bushels per acre and a sign that a high yield potential exists in corn, if we get the rainfall this year.

Corn planting is near the finishing stages at 92% complete, 2% ahead of normal. Two states lagging the most in planting progress are Michigan (-17%) and Pennsylvania (-19%), who are only 64% and 59% planted thus far respectively. 

Soybean planting also is ahead of normal at 77% planted vs. 62% normal (15% ahead). Soybeans are 47% emerged, also 15% ahead of normal 32%. 

Cotton is 62% planted (3% ahead), and sorghum is 49% planted (5% ahead of normal). Sunflowers are 30% planted (5% ahead), and HRS wheat is 91% planted (2% ahead) with 63% emerged (5% behind yet). Oat planting is 94% complete (1% behind), and is 82% emerged (4% behind) and 27% headed (2% behind). Oats are rated 66% G/E, up 8% from last week and above last year’s rating of 61%, so this crop also is improving nicely with warmer weather.  

Barley is 93% planted (2% ahead), and 68% emerged (4% behind), with conditions initially rated 69% G/E vs. 70% last year. 

Overall, it’s surprising how good the crop is rated in most categories, considering the unusual spring we’ve had, and the slow planting we started with. Really, getting warm/dry in early May was exactly what we needed after a horrendous slow start to planting with our bone-chilling March and April. But now that the crop is planted after a very warm/dry period (which was needed), it needs rain to bring this yield potential to fruition. The warm/dry weather pattern needs to end and a more normal weather pattern emerge; if it stays warm/dry another 10 weeks, this crop could go backward very quickly. It is this respect for what could happen to grain yield potential if it stays warm/dry that is keeping prices relatively high (the highest in one to two years yesterday in corn, wheat, and soybeans).  

The key question now is, what will the next 10 weeks of weather be like? Will it continue the warm/dry pattern that has emerged this spring in May, or will we return to a more normal temp and precip pattern? This is the million-dollar question. Compared with the importance of the next few weeks’ weather, all the other factors in the grain market are only minor distractions (including the U.S.-China trade dispute).  

The current weather forecast calls for above-normal precip in HRS wheat country the next seven days (as it did this weekend, but below normal precip fell).  Normal precip should fall in the central Corn Belt and southeast U.S., with below-normal precip in HRW wheat country and the western Corn Belt.  The eight- to 14-day precip forecast returns to below-normal precip for the entire U.S. The most steady forecast comes in temps, with above-normal temps emphatic in the entire 14-day forecast. It has been true that the above-normal temps forecast has not waivered for most of May, and that has certainly been correct by weathermen as it has been warm. But where the forecast has constantly been wrong has been in the precip forecast. We ebb and flow from below-normal precip to above normal; but all that seems to materialize is below-normal precip. (The weather forecast has been too wet for reality.) Which makes one wonder: Are weathermen off in the precip forecast on the wet side?  When will that correct, if ever?

The market is certainly holding premium for the current weather pattern of hot/dry, so if that ends, this market could be under some pressure. If the heat forecast ends particularly, we could be in some trouble. But if hot/dry weather hangs around another 10 weeks (adding to the four weeks it already has been warm/dry in May), then the 2018 crop is in trouble!

Ray Grabanski can be reached at raygrabanski@progressiveag.com.  
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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past 8 years. 

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