Dale Durchholz: Weather Conditions Take Control of the Corn Market…Again

July 10, 2013 11:32 AM
 

Adviser Q&A: Dale Durchholz, AgriVisor

DaleLDurchholz

Q: The June 28 Acreage report held big surprises in corn acreage, how do you explain this surprise and do you agree with the figure?


A: Two features play into the mix as far as the unexpectedly high corn planting estimate. First, corn prices and economics have consistently been better than other crops – soybeans, cotton and spring wheat in particular. That biases producers to plant corn if at all possible, and much of the Midwest had a good window for planting in the middle of May.

At the same time, the mechanical technology we use today allows planting to occur at a time it would have been more difficult in the past (for example: at night). A number of producers were planting well into the night to take advantage of the good weather. Second, the acreage increase, at least compared to what traders anticipated, appeared to come in areas outside of the "heart" of the Corn Belt (the 3 "I" states, Minnesota, Ohio). Planting conditions were generally a little better than they were in the Iowa/Minnesota/Wisconsin corridor, in particular.


Q: Corn crop conditions ratings are near their historical average, yet the percentage of corn silking is well behind the average pace. How big of a role do weekly crop condition ratings have in your marketing decisions?


A: With 50% of the crops already priced nearly $1 above the most recent low, the condition and progress reports will weigh heavily on marketing strategies through the growing season, maybe even into the fall. Given the late start, and behind normal development, weather plays a huge role in the markets over the next 2-3 months. But, it’s important not to confuse threat with the actual implications.

For example, the current wave of temps to 90/low 90s is actually good for corn in that they push above normal heat units into the crop, helping push development forward. That will change once pollination begins, but for now, some heat is a good thing, being mindful it doesn’t get too hot, nor stay too long at a time. Producers need to remind themselves that it again takes a poor crop, one with a yield less than 150 bu./acre to potentially tighten supply/demand enough to justify anything over the recent $5.70s peaks on the December contract.

Q: This is looking ahead, but undoubtedly concerns of an early frost will play a bigger role in marketing than in recent years. Do you believe that prices may find support from this potential concern and hold onto some weather premium or more likely to ignore that factor only to add weather premium if that risk can be more quantified?

A: The lateness of the crop will make frost a concern this year. Whether that remains an element depends on the pace of development into early September. The need to maintain some "frost risk" premium in the market will depend on the situation at that time, along with the general forecasts going forward.

At this writing, the trade is more concerned with the possibility of having a heat wave during July/August and the consequences it will have on the productive capability. One thing different this year from last is that soils aren’t dry other than in the Great Plains, the Western areas in particular. A year ago, much of the Midwest was already in a moderate to extreme drought, and getting worse… Dry soils in the fall also tend to raise frost threats/damage. If soils are moist at that time, crops will have some radiational warming during the night time hours, mitigating some of the risk.

Have a question for Dale?

Contact him at ddurchholz@agrivisor.com or 309-557-3147.


 

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