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Grain Markets Move Sharply Up or Down, Analyst Says

Seems there is no middle ground in the grain markets.

We had a nice rally into new highs in winter wheat and corn markets, the highest price in the past year into this May. 

Then, weather improved for planting after we had fallen a couple weeks (give or take a week) behind normal planting in the U.S. The Corn Belt and northern Plains were furthest behind normal, as the northern region was dealt some pretty cold weather. It’s hard to plant when soil temperatures are so cold and also wet, and that’s exactly the situation most producers were in to start this year.  

But weather has warmed nicely into May, and now we have a forecast that is basically warm and relatively dry (at least for a week), but not too dry as to suggest 2018 will be a drought year (at least, not yet). So, prices are settling back down after that push to new highs in early May. We actually were due for a setback in prices after the rapid rally. But the setback was rapid. Seems there is no middle ground in the grain markets, and either we are going sharply higher, or sharply lower!

While weather is starting to straighten out here in the U.S., Brazil has been struggling with the central and southern portions with a drought – hot and dry weather that has been devastating so far to second-crop corn. However, their weather is suggesting a reprieve from the hot/dry weather in central/southern Brazil, with some much-needed rain rolling to this region in the eight- to 14-day outlook. That’s still a long way off, but at least it’s an improvement from the constant weekly forecast of no rain that they’ve been getting. That second crop desperately needs a rain now, and is important to the outlook of the world’s corn growers.  

U.S. weather forecasts are getting a bit wetter again, with the northern third of the U.S. seeing above-normal precipitation the next seven days, the central U.S. about normal precip, and the southern third below normal. That is similar to yesterday, but the eight- to 14-day forecast is wetter in the Corn Belt, with expanded coverage and a bit more rain forecast in some areas.  The central Corn Belt, most of HRS territory, and the eastern two thirds of the winter wheat region will see above-normal precip in the eight- to 14-day forecast. That is slightly bearish, if after another good week of planting a rain helps the crops. So, the weather continues to improve from the icy cold conditions in March and most of April.  

Crop progress numbers yesterday, May 7, have shown that planting progress was rapid last week under dry conditions, with 22% of the corn planted. Now, at 39% planted, the pace is only 5% behind normal. Corn emergence is still behind at 8% emerged, 6% behind average. Soybeans are 15% planted, 2% ahead of average while cotton is 20% planted (equal to average). Sorghum is also on schedule at 29% planted, with rice 1% behind average as the South is about on schedule.  

Sugar beets raced ahead to 66% complete planting, now 3% ahead of average (with 42% planted last week). Northern crops are still well behind, though, with oats only 56% planted (18% behind), HRS wheat 30% planted (21% behind), and barley 42% planted (17% behind).  So northern crops are still well behind normal, even though most had a great week of planting last week.

Winter wheat ratings are up 1% to 34% rated G/E, with the Pro Ag yield model up 0.16 bushel per acre to 47.1 bushels. That’s still below trend of 48.94 bushels, but this crop is improving the past few weeks with cooler weather and some scattered rain in winter wheat country.  Ironically, while it was improving slightly, prices were soaring higher in the past two weeks until just recently. While winter wheat isn’t out of the woods yet and a lot of weather is left until harvest, the recent weather improvement has at least stopped the slide in winter wheat yield potential.  

Pasture conditions are poorly rated at only 42% G/E (vs. 63% last year), and soil moisture levels are a bit down from last year at 74% adequate/surplus topsoil (vs. 91% last year), and subsoil at 72% rated adequate/surplus (vs. 89% last year). Soils are starting to dry out a bit with the recent warm/dry weather.

The recent sharp break in prices was quick and steep, and one wonders how much lower we can go before we get too deep into the growing season. The worst situation now that planting weather has improved is for a hot/dry summer to develop. With late-planted crops due to the cold, early-season weather, the 2018 crop is more susceptible to heat/dryness late in the season, when crops are in reproductive stages or later. Hot/dry weather is exactly what you don’t want if you are a market bear, and exactly what a market bull will want. We will see who gets what they want for Christmas.

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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