Analysts Wonder About Weather Rally

March 10, 2016 12:00 PM
 
Analysts Wonder About Weather Rally

With December corn futures priced at $3.80, farmers are keeping their fingers crossed for a spring rally and its promise of profitable grain sales.

It certainly could happen, according to analysts on U.S. Farm Report.

“Just thought of a weather scare could give us a nice little rally,” said Ted Seifried of Zaner Ag Hedge. “You look at the funds at record-short positions carrying a very big, big percentage of the open interest. And you look at end users … which are going a little bit more hand-to-mouth and not booking out that longer term-coverage. You’ve got two big market players that, if you give them a bit of a scare (such as) a concerning weather forecast as we get in to the growing season, could be competing for bids.  That could give us a nice little pop.”

Should that occur, growers need to be prepared to take action, because such a rally would likely be short-lived. They might also want to steel themselves to sell grain on realistic price increases—not just the dream of $7 corn.

When it comes to prices, Seifried cautioned, “there are a lot of other factors involved, such as China sitting on 30% of the world’s corn stocks. If we were to have an issue here and prices were to get better, China likely would be putting a lot of that corn on the market. Not for us, necessarily, but some of our business might be taken away” as a result of such a move.

That possibility means farmers need to be ready to move if prices do improve, even if just briefly. “I like the idea of having calls in place to allow you to make those sales when you do get that rally,” Seifried said. “Just be ready to pull the trigger.”

Chip Flory, editorial director of Pro Farmer and host of Market Rally, agreed.

“The corn guy, I think, is most vulnerable to a weather scare rally. Soybeans are behind that, and then wheat down the list on vulnerability to a scare rally,” said Flory, who called the current “period of low prices” a “demand discovery period.”

“It’s just a nicer way of saying that prices are low enough that we should start to see some additional demands start to come in here,” said Flory. There’s just one caveat: all that stored grain. “Right now, to impact the old-crop market, it’s going to have to be a burst of demand, and I don’t see that happening right now.”

Why not? The U.S. dollar, which has make American products more costly compared to other countries, but there’s another factor that might be keeping the market more casual about the weather threat than in the past: improving plant genetics, which have made crops more resilient in challenging growing seasons.

“I don’t think the American farmer can forget that these genetics today are so good that even with a weather scare” the crop can still deliver solid yields, Mark Gold of Top Third Ag Marketing said. “Last year, these guys were saying on June 1st that because we were getting in the corn crop after June 1, we couldn’t have trendline yield.”

“They were right,” said Gold. “We had above-trendline yield…. So the fact of the matter is, if we get a weather scare because of heat, you’ve got to take advantage of it long before we find out that the heat didn’t do as much damage as we thought.”

Want more video news? Watch it on U.S. Farm Report.

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