Market analyst: Weather problems disappearing

Ray Grabanski Special to the Farm Forum
Farm Forum

In January, we had all sorts of problems to deal with, including a drought in both South America and the U.S. that was threatening corn and soybean crops, with dire consequences in Brazil and Argentina. Both were in the grip of significant drought. In addition, U.S. weather was in a dire drought with temperatures about 10 to 20 degrees above normal for about five months and rainfall absent almost everywhere.

This was a severe drought for the U.S. and South America, and it was worrying the market. Flash forward to April, and cooler, wetter weather has the U.S. Department of Agriculture hiking South American production estimates for soybeans above trend yields in Brazil.

U.S. winter wheat crops greatly improved to above average due to improving rainfall, and soil moisture levels are also almost perfect in the majority of the Corn Belt. That is not the type of weather change that compels prices to go higher and continue an uptrend.

Weather forecasts have turned to cold and dry in the Corn Belt the next two weeks, with below normal precipitation in the east the next seven days but above normal in some western states. The eight-to-14 day forecast is cold and dry, with below normal precipitation mostly and below normal temps. This cold, dry forecast will allow planting to progress, but it won’t be the rapid pace earlier expected. But on the other hand, that also eases drought fears because you can’t have a drought in a cold weather year. If the crop gets planted early (as it appears so far) and we have a cool year, usually that means an above-average crop. Frankly, the weather developments the past month have diminished the risk of drought and made it possible that an above-average crop can be produced.

Crop progress reports out recently reinforce the idea that weather is improving crop potential, especially winter wheat crops. Yesterday’s report showed it’s an early planting year so far in hard red spring wheat (5% ahead with 11% planted vs. 6% normally), barley (2% ahead with 13% planted vs. 11% normally), sugar beets (10% ahead as 17% planted vs. 7% normally), oats (6% ahead with 39% planted vs. 33% normally), and other cool season crops.

But corn (1% ahead with 4% planted) is just getting started as soils are still somewhat cold and wet in many areas. Cotton is 8% planted, 1% ahead of normal while sorghum is 14% planted (3% behind normal).

The soil moisture situation has improved considerably from late last fall (67% rated adequate/surplus topsoil and 64% subsoil), nearly ideal for planting vs. the extremely wet conditions we had last year at this time (both over 90% adequate/surplus last year). Winter wheat is 53% rated good or excellent (the same as last week), but yield models now showing above trend yields likely (0.65 bushels above trend at 51.2 bushels vs. 50.56 trend). That’s a dramatic turnaround from the drought last fall, and the extremely cold weather this winter. Its likely the winter wheat crop will be above normal as its been improving the past few weeks. Soil moisture levels also improved nationally rather dramatically since mid-January, and the weather trend since then is definitely bearish. That makes it hard for the market to rally even though exports are still strong (about 60 million bushels of corn last week, 12 million bushels of soybeans and 17 million bushels of wheat). The world is not going to run out of grain before next year’s harvest, even with China feeding a lot of grain to livestock.

As we’ve been saying the past few days, essentially, the improvement in South America and U.S. weather since mid-January has helped the world to dodge a bullet in world grain supplies. The improved weather healed the Brazilian crop, and to a lesser extent Argentine crop, and also helped alleviate the risk of drought in the U.S. Today, U.S. conditions look closer to normal and the drought weather pattern has ended. Combined with what looks like an early planting season, the U.S. now has prospects that could include a bumper crop in 2021 with the right weather.

Of all the states, North Dakota is the sole state still at risk of drought in 2021. So hard red spring wheat still has a potential bull market run in 2021. But so far, the corn and soybean bull market rally could certainly end.

We have sold a lot of product in the past six months, and like our position of 50% priced corn and 20% priced soybeans going into the new 2021 year. If we get an opportunity, we’d like to advance oilseed sales to near 50% as well this planting season as profit opportunity knocks.