Weather Quickly Becoming a Concern
May 18, 2012
"Sukhovey" is the word of the week. For those who aren’t familiar with the term, it is being used right now to describe the hot, dry, desert like summer winds that are blowing into southern Russia, causing several in the trade to take immediate notice. The temps are really heating up and the relative humidity in some parts has now dropped to below 30%. There are a few sources starting to think it could be a repeat of the 2010 weather cycle that devastated the Russian crop. The bottom-line from here out will be the rainfall amounts in these increasingly dry areas of the country. If we actually see the crop conditions start to get worse you have to believe the supply and demand figures will really start to tighten later in the season. Keep in mind a lot will also depend on the situation in Europe, the dry weather hitting eastern Australia, Ukraine, Kazakhstan and several areas here at home in the southern plains. Moral of the story, keep one eye on Russia at all times from here out, if the crop looks as if it is going to fall below 50 million metric tons then there is a chance the wheat market will become extremely nervous and explode higher on "short" liquidation. At the same time though we need to keep our other eye on a few weather related problems starting to pop up in other areas of the world...Kansas, Oklahoma, Australia, Europe, etc...
Corn is obviously going to be all about "weather" the next several weeks. I continue to hear talk from producers who are experience more dry conditions than normal, but at the same time many actually tell me they would prefer this over conditions that are too wet. The dry conditions this time of year often allow the corn crop to establish extremely deep-roots which prove to be more beneficial in the long run. I am not for one-second saying that the dry conditions do not need to be monitored, I just wanted to point out that it is still a little early to be "wildly bullish" on these reports.
I know it is early to be talking about the 2013 crop, but I want to go ahead and get a floor in on 20-30% of our estimated production for the 2013/2014 crop year. A lot of you guys already have a portion of your fertilizer inputs locked in and cash rents secured for the next couple of years. Wheat traded back above it's 200 day moving average and from a technical perspective is looking much stronger. Corn however has me a little more concerned, especially longer-term. I am just worried that "IF" the weather turns out to be "non-event" then prices could really drop in the coming months. My reasoning is that ethanol production domestically is NOT see the type of gains it has experienced the past few years, and the livestock herd is NOT growing any too quickly. Moral of the story, our only real area of growth will be coming from exports. Unfortunately exports in corn will not move the balance sheet like exports in beans move the balance sheet. Therefore without a significant production failure we could very well be looking at sub $4.50 corn in 2013-14. Why risk it???
Hotter, dryer weather seems to be prompting the "short" traders to re-think their current positions. Traders might not want to be outright long the wheat market as of yet, but many are certainly reducing their short side exposure as things start to heat up in Eastern Australia, the southern parts Russia and here in the southern Plains. If those short the market continue to buyback their positions in an effort to get closer to shore and reduce upside exposure then there is definitely room to work higher. Corn traders are still digesting thoughts of private analyst raising their estimates for China's corn imports, and the Argentine government lowering their own production estimates for corn. Remember, the USDA is at 21.5 million metric tons for Argentine corn production, when the trade is thinking we should be much closer to 20 million metric tons. The soybean market may soon start to gather some additional support from the hot dry weather as well. Not that the soybeans that are already planted are in any type of trouble, but those thinking about "double cropping" soybeans may soon start to rethink their original plans if we continue to see the hot, dry patterns. You have to believe if the total number of soybean acres stay below 76 million then prices should remain well supported. With the "weather" becoming more of a concern we should start to eventually see a little more fear and uncertainty coming into the marketplace. This mood should help support most breaks. Traders are definitely nervous about carrying large long positions home over the weekend with Europe teetering on the brink of a melt-down, but with more talk within the trade about a possible "ridge" building very few will want to be outright short. Producers should continue to wait to price more new crop bushels. Those looking to price 2013 corn can start slowly easing a toe into the water. Spec's need to be positioned to the long side in extremely small doses.
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