Why Can't Corn Rally on a Wet Spring?
May 30, 2017
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It has been one of the wettest springs on record in many areas making corn planting difficult and flooding previously planted acres. Yet, the corn market has been reluctant to embrace the weather concern and rally. Why is this and will corn ever rally?
Time after time huge amounts of rain has fallen, especially in the eastern half of the corn belt creating a huge mess for farmers. There has been a massive amount of acres that have needed to be or will need to be replanted and in some areasemergence has been slow at best. This has lead many to believe that corn prices should be going higher here and now. However that has not really been the case so far.
For one I would like to say (and have been saying for some time) that this is a year where the grain markets seem very reluctant to build in much weather premium. We have massive old crop stocks and the market was fooled into pricing ina significant amount of weather premium last year only to have to take it all away in the second week of June. Fool me once...
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But, it is more than that. Pro traders have been told many times that "rain makes grain" and "don't buy a "too wet" rally". And, there is a point here. Rarely is "too wet" a good reason for grain prices to go higher. It is simply too early to get concerned about yields in May, there is a lot that can happen to turn things around this early in a growing season. Take Argentina's last growing season for example. They had tremendous flooding early on, but ended up with a crop very close to what expectations were before the rain started to fall.
The year 2013 is another good example of why it is difficult to get too excited. Before the 2013 crop was planted the USDA was using a 158 trend-line national average yield. (side note - it is amazing to me that trend-line yields in corn have jumped 13 bushels an acre in 4 years) The spring of 2013 was one of (may the) wettest on record and we had a terrible time getting the crop planted. However, at the end of the growing season the USDA reported a 158.8 as their final yield. So, we have proven that a very wet spring does not necessarily mean below trend yields. However, what did suffer in 2013 was acreage.
This is why weatherwas so important to the corn market returning from the Memorial Day holiday weekend. If we had gotten the soaking rains over the weekend and walked into another soggy forecast we could have been legitimately concerned about not getting a chunk of the corn acres planted. However, with less rain than expected and a better forecast that concern softened.
In the long run I do think the stage is set for strength in corn. I am not surprised it didn't come in the spring, however. There will be adverse effects from this wet planting season that can only be covered up by near perfect weather going forward. I also think the expectations of a 171 national average yield (would tie second best on record)are lofty. Export demand could also be understated by the USDA give the recent issues in Brazil. So, the stage may be set for a rally in corn at some point later in the growing season. But, there may be a lot of producers that get frustrated and throw in the towel on selling corn first. In fact this could be part of it all. It might be a good year to think of ways to capture upside potential on sold bushels.
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Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.Follow me on twitter @thetedspread if you like.
JulyCorn Daily chart:
JulySoybeans Daily chart:
Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
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Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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