Hello Pro Farmer Members!
As expected, USDA’s February Supply & Demand Report featured no major surprises. While U.S. and global carryovers were projected slightly higher than anticipated, they weren’t off from pre-report expectations enough to be major surprises. Still, the report data was a reminder that there’s too much supply and not enough demand for the corn, soybean and wheat markets. That’s a concern given building macroeconomic struggles.
What these markets need is bullish news to cause traders to actively cover short positions and put in price lows. Typically, bullish news at this time of year would come from export demand. But export demand is lagging. USDA lowered its 2015-16 corn and wheat export projections this week. It left its soybean export projection unchanged. But given the sluggish export paces, there’s risk export forecasts may fall further — for soybeans, too. Therefore, it’s unlikely export demand will give markets the bullish boost they are needing.
One factor that could spark export demand is the U.S. dollar. The greenback has dropped sharply the past two weeks and touched its lowest level since late October this week. That may spark some increased interest in U.S. grains and soybeans, but with hefty global feedgrain and oilseed supplies, there’s no urgency for global end-users to aggressively forward book supplies unless they feel prices are headed sharply higher. I highly doubt that’s their thought process right now. In fact, many of them are likely to wait to see if prices get even cheaper before booking given abundant supplies and macroeconomic concerns.
If export demand isn’t likely to give markets a boost, the next logical factor could be weather. It’s likely going to take a weather scare in the U.S. to fuel fresh buying in futures. The strong El Nino is expected to linger into spring, reducing odds of a U.S. weather threat by planting season. After that, conditions are expected to transition to ENSO-neutral and then likely to La Nina. The U.S. Climate Prediction Center puts odds of La Niña developing at 22% for June through August (unchanged from last month), 37% for July through September (was 33%) and 44% for August through October (was 40%).
So... odds are still relatively low La Niña will arrive in time to greatly impact the U.S growing season. However, some meteorologists say a rapid transition from the strong El Niño could produce La Niña-like conditions (warmer, drier weather across the central U.S.) before La Niña is officially intact.
Too much supply, not enough demand and limited prospects for a significant improvement in export demand leave the grain and soybean markets grasping for bullish news on the weather front. A summer weather rally may happen, but I wouldn’t use pen if writing that into your marketing plan.
That’s it for now...
... have a great weekend!
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