How Much More Weather Premium Can We Add?
Jul 09, 2012
Weather continues to play the leading-roll for the Ag markets. Extreme heat over the weekend along with limited rainfall has traders adding more "weather" premium this morning. Forecasters continue to talk about a break from the extreme heat along with rainfall slated for several of the Southern states, but many believe that at least half of the Midwest will remain extremely dry with very little if any rain hitting the ground during the next few weeks. Then by mid-month we will turn back up the furnace and temps will push back to the extremes .At this stage of the game we not only need cooler extended temps but we also need the moisture, one without the other is simply NOT the solution!
Corn traders are now looking at how cheap corn out of Brazil has become and wondering if the US will eventually end up importing corn from South America? What a crazy thought, importing corn from South America as US producers are harvesting our crop here at home. Don't think for a minute this is too far out of the realm of possibilities, cheap prices in Brazil could certainly justify the move. Anyway you want to slice it, I am afraid US corn "exports" are going to be in big trouble in the weeks ahead, just keep in mind though, you have to have the corn before you can export the corn. Right now traders are not only questioning how much "old-crop" supplies are still around, but seem to be also questioning our upcoming "production." Not only have we lost the top-end because of the extreme "heat" but you have to believe we are now losing a ton of potential because of the extremely "dry" conditions. From my perspective the trade seems to be trying to determine if we have lost 5% or 20% of our US corn yield. On the conservative-side a 5% reduction gives us a 157 type yield, on the extreme-side a 20% reduction gives us closer to a 132 type yield. The problem is the conservative scenario gives us ample supplies while the more extreme yield losses would be cause for more serious price rationing. Personally I don't feel that the crop is into the 130's as of yet, but there is certainly the possibility of us ending up with a national yield number in the 140's before it is all said and done. Especially considering the severity of the top and sub-soil moisture levels.
Crop tour reports are indicating the US corn crop South of Memphis should provide us with ample "early" supplies of corn to offset the lack of "old crop" supplies. From what I am hearing the corn to the South pollinated early enough that it should come in with some good yields. There may still be some Aflatoxin issues, but I think the yield numbers coming out of the fields will be fairly good. The early bushels from producers north of Memphis up into St Louis and Southern Illinois are looking at an entirely different scenario with much more substantial yield losses. Several analyst now thinking 80% of the corn will be through pollination by the end of this week. As we turn the corner I suspect the market will now start to focus more on the lack of moisture than exclusively focusing on heat. With limited rainfall in the forecasts kernel depth and fill will certainly become a major concern.
As for today, the disaster year of 1988 is becoming more of a reality as the recent rounds of forecasts have us staring down the barrel at one of our driest July's ever, while following the warmest 12 months in our nations history! Moral of the story, hot, dry conditions could continue across the Midwest ultimately pushing US corn and soybean balance sheets to the extreme. Throw on top massive flooding in parts of Russia and lack of rainfall in India and we have the makings for even higher prices. With headlines like "national crop disaster" and "corn belt catastrophy" being thrown around by the press, there is more talk than ever regarding corn yields slipping into the 130's. Let's also not forget that many analysts are now predicting the US will in fact "Run Out of Soybeans" by the middle of this Spring. With these types of fears running wild, producers should continue to "hold" at current levels in anticipation of even higher prices. However, specs who are long may want to consider banking some profits prior to the release of Wednesday's USDA report, looking to re-establish on a setback! Look for the "extended" forecasts and the bullish"crop condition" reports from earlier today to dictate price direction.
We are making some moves in response to what the market is showing us. 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 "Money-Flow" and the Outside Markets. Just click here - Van Trump Report