A Look at the "Weather" Trade
Jun 13, 2012
Weather will obviously be the key focus for the trade here at home during the next few weeks now that the June USDA report is behind us. We still have the highly anticipated USDA Planted acreage numbers and Quarterly Grain Stocks coming out on Friday June 29th, followed by the July USDA Crop Production report on Wednesday July 11th, but between now and then it is ALL about "weather." The question is will temps run on the cool side with additional moisture coming our way or will we continue the hot and dry pattern seen the past several months? A lot will depend on if and when an El Nino weather pattern starts to develop in the US. As of right now, the "Southern Oscillation Index" for the 30 days ending June 10th was reported by Australia’s Bureau of Meteorology right around -7.8 vs -2.7 in May. That’s currently neutral for an El Nino, but it is certainly approaching the -8.0 area. A sustained SOI value below -8.0 is often associated with El Nino while a number above +8.0 is associated with a La Nina pattern. The U.S. Climate Prediction Center said on June 7th that there is a 50% chance the El Nino weather pattern may strike later this year. The chief of India's state-run weather office has said El Nino conditions are likely to emerge over the Pacific Ocean by mid-August. The Japan Meteorological Agency is saying it is highly likely that "normal" weather patterns would prevail in Asia through November this year and doubt an El Nino type pattern will show up any time earlier. Keep in mind, the last El Nino was recorded in 2009/10, though it was classified as weak to moderate. My point is yes, an El Nino weather pattern may certainly form, but I am afraid it may be a little late showing up for the party.
To summarize, I would have to say it will be all up to the weather from here. If we assume the USDA is going to leave the 2012/13 demand numbers intact then a corn yield of around 154 to 155 bushels per acre would keep ending stocks at their current levels. With this in mind, I would have to imagine any type of yield sub-155 would be extremely bullish, any type of yield north of 160 extremely bearish and a yield in between somewhat neutral. The "wild card" in the above scenario is obviously Chinese demand. Will the Chinese import the 7 million the USDA is currently estimating or could that number potentially double. Remember, I am NOT wildly bullish as of yet. I just believe the current 166 yield is too high. Will we fall below 155? It's simply too early to tell. Keep in mind I also respect the fact the funds may be apprehensive to add ANY additional risk ahead of this weekends Greek elections, next weeks negotiations with Iran and the upcoming US Fed meeting. Remember, if the money doesn't flow into the marketplace prices will NOT be going higher. Below is a recent visual of soil moisture deficits around the country, as you can see it certainly doesn't look conducive to what we would traditionally find in a record producing year. The makings are here for higher prices, but we are gong to need some help form the outside markets. Any type of mild stabilization in Europe would obviously be a big help, unfortunately we may not see that for several more days or even longer.
We are making some moves in response to Tuesday's USDA report. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of the "Weather" trade, "Money-Flow" and the Outside Markets. Just click here - Van Trump Report