A change in the forecast and better chances for rains across the northern Corn Belt seemed to be the reason corn prices started to sink to end the week. Corn prices fell more than 30 cents on Friday, a change from the rapid run-up in prices the past two weeks, even though drought remains.
“With weather markets, you get extreme volatility because of money flow, and the speculative money flow, right now, will change with each forecast because we’ve added premium back in” says Brian Grete of Pro Farmer. “We took the weather premium out earlier in the spring. And now we’ve added it back in, and so we’re basically forecast and forecast which means more volatility and money flow.”
Possible Weekend Rains
USDA Meteorologist Brad Rippey says the outlook for over the weekend into early next week is a touch more optimistic for chances of rains to fall in some of the northern corn and soybean production areas, mainly from the Dakotas to Michigan.
“The good news is that the block that has been persistent over the Midwest for a while now, really back all the way into May, has temporarily shifted just enough that it’s going to let a cold front and a storm system work its way through the Midwest starting over the weekend into next week,” says Rippey. “And so there is a little bit of promise for some rainfall. We’ve already seen some showers and thunderstorms working their way into the Dakotas into northern Minnesota. And that trend will continue through the weekend.”
Drought Reality Check
While rains could fall in northern areas of the Corn Belt, the forecast still shows little to no rain for the central Corn Belt. That means the stubborn drought that’s coming at the cost of U.S. crop conditions could continue.
“You have Illinois this week at 36% good to excellent,” says Matt Bennett of AgMarket.net. Obviously, that’s a massive drop. And when you start talking about the fact that last year, we were around 210 [bu. per acre yield] in Illinois, and then the national yield was in the low 170s. To me, you have to ask yourself what to do with the national yield if you start taking 30 to 40 bushels [per acre] out of the Illinois state-wide yield. And I think that that’s something that certainly is in the realm of possibilities at this stage of the game.”
Bennett thinks if rains don’t start falling soon, the impact on Illinois’ corn production statewide could be even more than that.
“You have to understand that this crop is changing by the day,” says Bennett. “It’s been a weird drought in that we haven’t been super hot, we’ve been fairly cool. But we came into this situation with not a whole lot of subsoil moisture in a lot of areas of the Midwest.”
Read More: Drought Reality Check: Areas of Corn Belt On Pace for Driest June Ever
Next week’s forecast turns cooler for the Corn Belt, but Rippey says it still looks fairly dry. He says more rains are needed at such a crucial time of the production cycle, especially considering farmers in the Midwest typically see 1 to 1 1/3 inches of rain every week, and there are some cities in Illinois and Iowa on pace for the driest June on record.
“We depend on that to get the corn and soybeans through, especially as they enter reproduction this time of year. We’re not seeing that,” says Rippey. “We have a lot of communities, a lot of towns and cities in the central part of the Corn Belt at risk for the driest June on record, especially in Illinois and parts of neighboring states with totals in the range of one-tenth to one-half of an inch of rain so far in June. Normal totals are three to four inches of rain.”
A True Weather Market
Rains forecast for the weekend could hit the upper Midwest, but states like Illinois still look dry. So, why did the potential rains send corn prices sharply lower? Grete says that’s how a weather market works.
“If we do get a rain event, yeah, they’re going to take some of that premium back out of the market, and then if it turns dry, again, you’ll be back to adding in premium,” says Grete. “We are now at the point from a soil moisture standpoint, we’re hand to mouth, so to speak, on rains. We don’t have any subsoil moisture to pull from so to speak. And as a result, it is going to be forecast to forecast.”
Grete says it’s also important to keep in mind the U.S. corn crop is entering a critical time for production as pollination and then grain fill begins.
When Could USDA Change Its Forecast for National Yield?
There’s still a lot of growing season left, but considering the large drop in crop conditions, when could USDA start to adjust its yield forecast? Grete thinks it could happen in just a few weeks.
“It’s still a projection in July, but I do think that there’s precedent there for USDA to cut both corn and soybean yields in the July was the report,” says Grete. “But there’s some risk involved there too because sometimes they cut it and it causes market reaction, and then then later on, you may have to add back in some of that yield, there is risk there.”
Read More: Drought Watch: 64% of U.S. Corn Crop Now Covered by Drought
Even if USDA decides to trim the yield forecast in July based on the rapidly declining crop conditions, Grete says it’s important to keep in mind the yield forecast is still a projection. The first true estimate doesn’t come until August when USDA will go into the fields to measure yield potential. The first farmer-based survey estimate then happens in September.
“We’re still a long ways off from having good, hard information coming out of fields, and right now what we’re basing it off of his crop conditions and those crop conditions are declining,” says Grete. “We’re also basing it off of the drought situation. And as you mentioned, the drought is spreading and spreading rapidly across the Corn Belt, especially in the central Corn Belt right now.”
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