Weather, Government Aid Dominate Farm Markets, Analyst Says

It was a choppy trading week, with weather and confusion over government assistance dominating price action. Chicago wheat was up 24¢, KW up 22¢, and Minn up 20¢. Corn was 21¢ higher and soybeans up 8¢.

The rains just won’t stop. Soft red and hard red wheat are seeing major disease issues, which is lowering quality and yields. Added to that is the stalled harvest in Texas where rains have kept combines idle for over a week.

The disease issue is most acute in soft red winter wheat country, where standing water and heat have created an ideal environment for fungus and will likely cause high levels of vomitoxin that will render the wheat unusable even for feed. Producers will either have to destroy it or store it and hope for a higher quality crop next year to blend.

We’re also seeing significant disease issues presenting in the southern Plains, with hard red winter wheat expected to see quality and yield declines as well. However, the earlier growing season was better for the Plains, and yields are projected to be record high in many areas. If the rains continue like they are forecast to do, those lofty expectations will start to ratchet downward.

Either way, it is clear that soft red production will take a hit this year and end users are scrambling to secure supplies.

The wheat complex is also focusing on potential weather hazards in the Black Sea region. Southern Russia, where most of their exportable supplies come from, has been borderline dry all spring, as has the Volga area. Both are major wheat producing regions in the world’s largest exporting country. A production issue there would certainly be a game changer for the wheat complex. It is important to keep in mind that early season production estimates were near record high, so we’re starting from a high number.

Midweek, the government announced another aid package for producers affected by the U.S./China trade war. The announcement was short on details and created significant confusion in the market and a bearish reaction. The next day, USDA offered more explanation and markets rebounded.

The Market Facilitation Program will offer $14.5 billion over three payments and be based on county average total acreage planted. The initial confusion centered on ‘acres planted.’ With the record-slow corn plantings this spring, that would make a huge difference. Initially, there was not an allowance for prevent plant – eligible acres had to be planted but couldn’t exceed last year’s acreage. The next day, there was some clarification and reconsideration that would allow producers to take prevent plant and still get the MFP payment. The market is not really sure yet about the details.

What is clear is that government ‘help’ aside, weather is the driving force and it is creating major headaches for farmers. Corn plantings are already at a record-slow pace and rains are forecast through the next week. Prevent-plant deadlines are tomorrow for a lot of farmers. If the government is going to allow farmers aid money for prevent-plant acres, we’ll see a huge amount of corn go unseeded, and likely an increase in soybean acres.

There is still a lot up in the air, but with the Memorial Day long weekend up front and June just around the corner, markets are on edge as the corn planting window quickly closes. Wheat is holding its impressive rally and looks ready to stretch that rally into next week. Harvest delays here in the U.S. and potential hot and dry in Russia will offer support. Eventually, harvest will proceed, and prices are likely to soften as we move deeper into June.

I expect wheat to settle into a trading range with the recent lows the bottom of that range. This week’s spike highs could still turn out to be the top of that range, but Friday’s price action looks poised to take those out.

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Louise Gartner,
Owner, Spectrum Commodities

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