Be careful what you wish for when it comes to weather.
After heavy rains transformed parts of Texas from drought conditions to a flood zone, commodities analysts are wondering whether that rain in the Plains has helped or hurt the crops—wheat, cotton, and others—in the state and neighboring areas.
“It’s a bit of a double-edged sword,” acknowledged Mike North of Commodity Risk Management Group, speaking on U.S. Farm Report on Saturday. “We got water in wheat country right?”
While USDA does release Crop Progress numbers on Monday, it may take time before the true impact on wheat emerges.
“We’re looking for the crop conditions to improve from a condition standpoint, but that doesn’t mean the harvest quality of the wheat is necessarily going to blossom with it,” North explained. “As you get all this water, you can start to see a little bit of a dampening effect—pardon the pun—on protein numbers, and we can start to see quality issues become a little bit of a concern.”
Watch a clip of the discussion between North and fellow panelist Dustin Johnson of Ehedger on U.S. Farm Report with Tyne Morgan:
“Coming into the month of May, the SRW contract had a 61-cent carry from July to July. We’ve since seen that improve to about 49 cents, when we were talking about VSR and the extra carrying costs—a lot of people were expecting the opposite to happen,” Johnson said. “This definitely changed the hearts and minds of a lot of the spreaders. Minimal impact to the flat price, but pretty good impact to the spreads.”
North agreed and highlighted the influence of hedge funds and their positions on this market. “Record spreads--that’s been part of what’s been helping to drive this market lower,” he said. “If you go back to the beginning of May, you remember the big move up in wheat? That was short covering, which took the market back here, and then, as the market started to soften, they were coming back and re-establishing some of those positions.”
He would not be surprised if a similar situation happened in June. “We head into the month of June with a big short position, and that could really spell fireworks at the end of the month if they lighten up on numbers—on corn especially,” North predicted.