Market analyst: Down the cliff

Ray Grabanski
Special to the Farm Forum

The grain market tipped over to the negative side last week, and has continued that trend into this week.

All grains, except for spring wheat, failed to run to new highs in a run that resuscitated the rally.  Ironically, now the market is dropping due to a forecast for cooler and wetter weather, even while there is virtually no rain in the corn belt forecast to fall this week. That will surely lead to another drop in crop conditions and yield potential, following a drop this week as well.

It's interesting to see the market drop while current weather is adverse, but this is a futures market and is always looking ahead.  

Today's weather forecast has widespread rain in the six to seven day forecast, but will still be dry the next five days. Thereafter, the 8-14 day precipitation forecast is for above normal precipitation and below normal temperatures, probably a perfect forecast moving into July (if it sticks around).  While markets were down sharply yesterday indicating the tops are probably in on charts, the U.S. crop continues to deteriorate on paper with the crop progress reports.

Specifically, the corn ratings dropped four percent to 68% rated good or excellent, with the Pro Ag yield model dropping 2.3 bushels per acre to 175.4, now a below 'trend' (176.95 bushel) yield.

That could spell trouble for the U.S. corn crop, should the weather pattern not change. Soybeans are 94% planted, with ratings also down a whopping five percent to 62% rated good or excellent.  The Pro Ag yield model (still relatively preliminary) dropped a huge 0.93 bushels per acre to 48.46 bushels, an extreme weekly decline and well below 'trend' 49.83.  Given these numbers, USDA would have to cut yields 1.4 bushels per acre or about 130 million bushels - and we don't have the carryout to do it.  Weather must change pattern because a few more weeks like this and prices would be forced to go to new highs on the new crop soybeans.  

Winter wheat is now four percent harvested versus 15% average, so we are behind average with the wet weather, but conditions also declined two percent to 48% good or excellent, with the Pro Ag yield model -0.31 bushels per acre to 51.38 bushels versus the 50.56 bushel trend. That also is a fairly high yield decline for wheat this late in the growing season and completes the trifecta for all three major crops yield model declines last week. That, if it continues a few weeks, could trigger another run at new highs.  

Note too the decline in topsoil moisture of four percent to 62% rated adequate/surplus, with subsoil down three percent to 61% rated adequate/surplus.  These are not good signs going into summer.  While the next five days remain dry, we hold out hope for the 2021 crop that weathermen are actually not just guessing when they forecast a return to cool/wet conditions in the U.S.  If we continue to suffer from drought conditions into July, we could have some more excitement in grains.  We note that July soybeans recovered in overnight trade from early losses, but will the other grain contracts do the same today?

Soon, we will enter the critical phase in July where reproduction occurs in corn, with soybeans following just a few weeks later.  This is the time when yield potential is primarily determined in corn and soybeans, which are about 60% of U.S. production of every type of plant.  So this is an extremely important time for the grain crop production.  We always say that in July and August there are three important market factors: 1) weather, 2) weather, and 3) weather!

So strap on your boots, it could be an interesting summer.