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Market Watchers Will Quickly Turn Their Attention to Spring Weather
Now that the USDA Acreage Report and Quarterly Stocks Report have been released, investors will now turn their attention to the spring weather, a factor affecting price direction.
Recently, heavy rains in the western Corn Belt and melting snow in northern Midwestern states have led to significant flooding. For many, a late spring is possible, and top yield potential could already be diminished. Is this enough to change the corn price direction to higher?
Not necessarily, or least that's the way bearish traders will view the most recent weather developments. In March, it is hard to determine if weather will make or break a crop. Those devastated with floods and experiencing the damage to fields, roadways, and bridges may feel the market doesn’t get it. At the same time, the market recognizes that recent wet springs have had little to no impact on final yields. Nonetheless, it seems believable that corn acreage in some areas may shift to other crops.
The technical picture for December corn futures indicates overhead resistance at $4.05. While the market traded higher than this level last summer when prices peaked at $4.13¾, the inability to rally this winter is due to a sharp downturn in wheat prices and good weather in the southern hemisphere. Expectations for lower bean prices also likely contributed to corn’s inability to rally, remaining in a tight range-bound pattern. Yet, uncertainty in production over the weeks ahead will likely pressure prices upward.
Nearly 75% of the world's corn is produced in the northern hemisphere. Prices will most likely move according to weather conditions. The stage is set for a very volatile summer, as less-than-ideal spring conditions are mounting. It will take favorable weather moving forward to reach trend line yields (176 bushels per acre). It might be too early to argue yield loss, and it could be that chances of a record crop are as good as ever. That said, record yield in the southern third and western tier of corn-producing states may already be in jeopardy. If northern hemisphere countries were to experience a hot and dry summer, crop yield expectations could decline, perhaps creating a need to ration supply.
Hot and dry conditions have not persisted enough to affect production since 2012. Some believe the law of averages says that too much rain in the winter/spring months will eventually lead to a warmer and drier summer. Only time will tell. The key question you need to answer is: Will you be prepared if we see high volatility? It could happen, and every year is different! Don’t assume 2019 will follow the production trend of the last six years.
If you have questions or comments, contact Top Farmer at 1-800/334-9779 Ext 129.
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.