Winds of change

Ray Grabanski Special to the Farm Forum
Farm Forum

04/03/18 — The winds of change, O they are a blowin’! Lyrics from that song aptly apply to the grain market this spring. After a big break in March, all of a sudden we might have some bull market activity after all. And the two month rally from Jan. to early March might be just a prelude for what is to come yet this spring and summer. Just when everyone thinks the grain market is dead, it comes alive!

The first step was the acreage intentions report, which showed much smaller corn and soybean intended acreage than expected. It appears we actually lost 2-3 million acres to just idling, as farmers apparently are tired of losing money planting grains (in many areas, losses the past 4 years). HRS wheat acreage intended was up, but with lower prices and a horrific late spring, that might not occur, either. And HRW wheat crops are still in very bad shape, too, with only a month or two left to revive that crop.

After the big rally on report day last Thursday, and the day off Friday for Good Friday, grains started the day higher yesterday, but leaked those gains all day to close lower in corn and soybeans, a disappointing performance to say the least. But it did follow up a sharply higher day Thursday, so uptrends are still intact. The speed of the uptrend may have needed to slow down, as we haven’t even started planting yet in the Corn Belt so that pace of gain was unsustainable.

However, there are some serious issues yet to be addressed by the market besides acreage intended and stocks. You can intend all the acreage you want, but if you can’t get it planted due to a late planting season, things can change quickly. For example, we might intend to plant 12 million acres of HRS wheat, but if we don’t get into the fields until May 1, we are past the optimal planting date in South Dakota and southern Minnesota already. It is then prime corn planting time, and attention will quickly go to corn. If the corn planting season is slow as well, acres intended for corn will slide into soybeans starting around May 15-20. If we have continued cold/wet conditions this spring, there could be a significant amount of HRS wheat and corn acreage that will be switched to soybeans or another late season crop. We’ve also experienced seasons where up to 5 million or more intended acres are actually prevent planted due to inability to plant at normal times.

Bottom line: Corn acreage could drop 2-3 million acres or more, and HRS wheat could drop 1+ million acres or more. That is just acres. Then we have to start subtracting from ‘trend’ yields for late planting, and in corn that could be as much as 3-5 bu/acre and in HRS wheat 2-3 bushels/acre. Then once planting is done, with both acres and yield already subtracted from production estimates, then we trade the actual weather. A switch to warm/dry in July now can threaten a late planted crop much more with crop losses from heat/lack of rain. It’s much easier to reduce crop yield potential after mudding in a crop late, and then have it dry up and warm up in mid summer.

So this crop is already in peril, with the Corn Belt and HRS wheat belt an ice house on April 3, with most planters still frozen in the mud! Last year at this time, crops were being planted and fields were being worked and fertilizers were applied. It should be quite apparent now to farmers and traders that 2018 is not 2017. And yields will not be, either.

Crop conditions yesterday for winter wheat was better than last week, but still horrific.

So to be prudent, one has to start subtracting from yields of corn, HRW wheat, and HRS wheat. We also need to subtract harvested acreage of HRW, and planted acreage of HRS and corn. The question is not should be subtract potential production, but how much. The outlook has improved considerably for grains in the past few months, starting with the disaster in Argentina, and now the ice bowl Corn Belt as April begins (normal start of spring planting).

Weather is more of the same, cold/wet in the Corn Belt and HRS wheat areas the next 2 weeks, and warm in the southwest (including western HRW wheat areas). SAM weather is also similar, with cool/wet in Brazil and warm/relatively dry in Argentina. At harvest, it appears that yields in Argentina might be smaller than current estimates, but Brazil actually might be larger if they can get it harvested without large harvest losses.

We will likely lose HRS wheat acreage to late planting, but also the slide in prices of HRS wheat relative to everything else will also lower acreage. HRS wheat has gone to new lows this month, much cheaper than all winter and even March 1 when acreage intentions were announced. There is probably now an advantage to growing corn or soybeans (or another crop) instead of HRS due to price movements the past few months (higher for most grains, lower for HRS wheat).

At the lowest prices since last spring, and acreage likely to fall by the time the crop is actually planted, HRS wheat prices will finally start participating in the rally. Western HRS country is still not replenished for soil moisture, and threats can always emerge there. We have been a HRS wheat bear since last July, but that bear market is likely to end soon. Time to buy back HRS wheat.

Ray Grabanski can be reached at raygrabanski@progressiveag.com.