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Investors Eye Weather Today, Trade Issues Tomorrow

Weather forecasts still seem mostly benign.

Grain markets have been sold hard in the past month, washing out prices to levels rarely seen in the last 10 years. 

Trade talk/tariffs have been the major culprit, along with an improvement in condition of the 2018 crop itself in much of June.  While the crop yield potential, arguably, improved a little in June, it wasn't all that significant that prices could have pushed that much lower.  

Instead, the major factor was related to politics and trade policy, with China/U.S. tariffs imposed starting July 6. (Does anyone doubt they will be issued?)  

With this kind of topic dominating trade, it becomes difficult to predict the market direction.  It doesn't seem to matter what the weather is, or what yield potential really is, or what demand is for our products from the domestic or export market.  When trade policy dominates the news and price direction, information on the next new trade dimension is all that seems to matter, at least for now.
 
Weather forecasts still seem mostly benign, with perhaps a bit less precip and cooler temps in the 14-day forecast as of July 3.  The next 7 days are now forecast below normal precip in the U.S. except the southeast and ND/MN.  The eight- to 14-day precip forecast is also below nroaml for the western Corn Belt, and normal in the eastern corn belt and CO/NM.  Temps are above normal for most of the Corn Belt the next 7 days, and below normal in the Delta and Southeast.  The temp forecast is a bit cooler for the eight- to 14-day forecast, which would be critical for pollination of corn (which will occur most of the rest of the month).  

Crop conditions and progress yesterday afternoon showed a slight decline in ratings, with soybeans down 2% to 71% rated G/E, while corn dropped 1% to 76% rated G/E.  Pro Ag yield models showed their first significant decline of the season, with corn yield down 1.44 bu/acre to 175 bu. 

The yield had been steadily rising since the first ratings of the year on June 4.  More  significantly, this decline was more than 1 bu/acre, so it does represent a departure from the previous month of improvements. 

Soybeans also showed a decline of 0.15 bu/acre to 48.52 bu/acre, also the first significant decline since June 11 (then ratings began).  If these declines continue, it will be difficult to continue the downtrends.  

Not sure what exactly is causing this decline, whether it be from the constant above normal temps each day in almost all areas, or the excessive rain in some areas, or the lack of rain in others.  But, it is noteworthy that while prices seem to continue their onslaught lower (on assumptions of perfect weather and declining trade), that weather, apparently, was not perfect last week, in many areas. 

Another factor might be that conditions typically improve for crop ratings this time of year, as crops reach their pinnacle of growth and reach bigger height and breadth.  But surprisingly, corn and soybeans declined this week.  Perhaps the crop isn't made before July 4, and there are some risks left?

Progress is moving further ahead of normal, with corn 17% silking (9% ahead of normal), and soybeans 27% blooming (14% ahead). 

Cotton squaring is 42% (2% ahead), and 12% setting bolls (3% ahead).  Cotton ratings improved 1% to 43% G/E, but still behind last year's 54% rating.  Sorghum is 22% headed (2% behind), and ratings declined 3% to 53% rated G/E (well below last year's 62% rating on hot/dry conditions last week).  

Sunflowers are 95% planted (equal to average), and winter wheat is 51% harvested (2% ahead). 

Winter wheat ratings remain at 37% rated G/E, and that is the last rating of the year as we are now over 50% harvested.  Yields remain somewhat disappointing in winter wheat.  HRS wheat is 58% headed (10% ahead of average), and ratings are 77% rated G/E (unchanged this week). 

While ratings of small grains are high yet, typically small grains (a cool season crop) don't do well in heat pushing maturity, and that is exactly what we have in 2018.  It's possible that unless we cool in July, HRS wheat yields will be disappointing relative to these high ratings.  

Barley is 50% headed (1% behind normal), and ratings improved to 84% rated G/E.  But barley, again, is a cool season crop, and being pushed by above normal temps is likely to trim those yields as well (especially if it persists in July).  

Oats is 82% headed (2% ahead of normal), and ratings improved 1% to 73% rated G/E.  Hopefully the yield follows the ratings, but typically on a warm year oats (being a cool season crop) will not produce the yields these ratings suggest.  

Soil moisture nationally dropped 1% to 73% adequate/surplus topsoil, and subsoil was unchanged at 71% rated G/E.  So ironically, moisture doesn't seem to be the problem so far, although some regions might be suffering from too much, while others are suffering from too little.

We now have the first week of July suggesting that corn/soybean yield potential declined last week for the first time this year. 

If these declines continue, it will put some pressure on the market to reverse and go higher in the next few weeks. 

There is no more critical weather than July and August for U.S. crop yield potential.  If trade is again more important than July/August weather, then we indeed are beholden to trade talks for our price direction for at least the next six to 12 months.  

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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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