Record rainfall wreaks havoc on corn and soybeans futures
A blistering drought in the Midwest can eventually send corn and soybeans into the stratosphere. Too much rain, however, makes the situation more complicated.
This is the position of farmers and grain traders after spring and summer rains delayed planting of both crops in the eastern half of the Corn Belt, then continued to soak the area until early of the month of July. The corn belt is the corn-producing region encompassing western Ohio, Indiana, Illinois, Iowa, Missouri, eastern Kansas, eastern Nebraska, and southern Minnesota.
“When you have a market that is facing a wet weather problem, trading typically has a much harder time understanding the extent of that problem,” said Dale Durcholz, senior market analyst at AgriVisor in Bloomington, Ill. .
The damage caused by hot, dry weather is easily visible. However, damage from excessive moisture is more difficult to assess, Durcholz noted. While extremely wet or drowned areas may appear rough, the actual impact on yields may vary from field to field, or even within a single field. And areas that receive above-normal rains but do not suffer from flooding can produce much above-average crops.
The struggle is evident in the price charts.
Corn futures rose at the end of June as concerns about wet weather finally surfaced. On the Chicago Board of Trade, December corn futures US: CZ5,
an indicator of the new crop currently in the field, fell from a closing June low of $ 3.69 a bushel to $ 4.39 on July 14, a jump of nearly 21%.
It was a similar but slightly less dramatic story for November soybean futures US: SX5,
which rose from $ 9.04 a bushel on June 15 to a closing high of $ 10.37 on June 30, a rally of 14.7%.
Expectations of better weather and strong harvests across much of the region saw corn and soybean futures postpone the majority of those gains, with December corn closing at $ 3.855 a bushel on Tuesday, while the November soybeans were $ 9.4475 per bushel.
The pullback reflects expectations that wet weather will still yield an above-trend harvest. The growing season, however, is far from over, which could still allow for more weather-inspired exchanges before the growing season is over.
Is it wet?
Heavy rains inundated parts of the Midwest from May to the first half of July. Ken Kleinschmidt, who operates about 1,500 acres near Emden in central Illinois, told MarketWatch he saw more than 19 inches of rain in June alone.
“No one here can remember having had so much precipitation in a month,” he said. “It’s kinda unbelievable. Three years ago we had a record drought, now we have record rainfall. “
The humid weather conditions that soaked the Kleinschmidt fields dominated much of the eastern Corn Belt – western Ohio, Indiana and Illinois – as well as parts of eastern Missouri.
In June, this region recorded more than 200% of normal precipitation, according to the National Weather Service. Illinois, generally the nation’s second-largest corn and soybean producer, had the wettest June since the government began collecting data 121 years ago. Indiana and Ohio also set rainfall records in June.
“The storm track was just lined up to carry many important storm systems across the plains and then through the eastern part of the Midwest,” meteorologist David Streit, founder and COO of Commodity Weather Group told Washington.
Meteorologists say above-normal precipitation in the Midwest could be linked to the El Niño weather phenomenon, which is marked by warmer sea surface temperatures in the central and east-central Pacific Ocean.
Whatever the cause, the recent decline in corn prices reflects the idea that despite unfavorable conditions in substantial portions of the eastern Corn Belt, the harvest elsewhere will more than make up for it. After all, the saying “the rain makes the grain” is a favorite adage of futures traders. While some farmers are undoubtedly suffering, above average humidity but manageable elsewhere should improve agricultural production.
Everyone is talking about the weather
The nervous weather conditions and the prospects for the harvest are inevitable and appear almost every year. At some point, a hot, dry spell or concerns about planting delays or early frost will frighten market participants, pushing up grain futures prices for fear that the potential harvest will decrease.
Later, if the weather changes, those fears can give way to relief, pushing prices down as market players add bushels to the crop.
Recently, market players have added a few bushels to both crops as the weather shows signs of moderation and conditions in much of the Corn Belt, including those most affected by the rain, are not particularly disturbing. In addition, crops in the western part of the Corn Belt, including Iowa and Minnesota, appear to be excellent.
There is still a lot to play, however. Most Midwestern corn crops are now in the pollination or late stage, the growth stage most critical to yield. The soybean crunch period usually occurs in August, when the flowering and pod filling stages occur.
This means it is too early to say with great certainty that corn or soybean prices have peaked, analysts said.
“You can go back. It’s not too late in the season to get back on the bushels “if conditions deteriorate,” said John Kleist, chief strategist at EbotTrading.com in Lakemoor, Ill..
Corn and soybean futures can become particularly volatile if adverse conditions persist. Years of devastating drought are etched in the minds of producers and traders. Important hot, dry weather episodes last pushed up corn and soybean prices in 2012.
Along with 2012, the drought of 1988 was the most devastating over the past few decades, resulting in a maize harvest nearly 28% lower than initially expected. Droughts reduced the maize harvest by more than 10% in 1970, 1974, 1983, 2002 and 2012.
Devastating rainy years are harder to find.
“They are so rare,” said Durcholz of Agrivisor. “I’ve been doing this for 40 years now, and the only other one I can think of off the top of my head is 1993. They just don’t happen often.”
the Great flood 1993 offers some rough comparisons. The destruction that year was more publicized. Unlike this year, the heaviest rains of 1993 fell in the central and western Corn Belt, causing massive flooding along the Mississippi River and its tributaries.
The maize harvest that year was about 20% lower than expected.
However, the floods and wet weather of 1993 were also accompanied by hot, dry weather across much of the southeastern United States.
For now, 2015 is not shaping up to be another 1993. Damage to corn and soybean crops in the United States appears to be relatively limited. The burden of proof may now fall on the bulls to prove crops are in danger, analysts said. History shows above-normal humidity and extreme low heat historically indicate above-average harvests, said Elwynn Taylor, professor of agricultural meteorology at Iowa State University.
Soybean prices could be more sensitive during the remainder of the growing season. The August weather will be closely watched, and it’s also less clear how many acres of soybeans haven’t been planted, a factor that will become clearer later in the year as the government compiles more data. on cultures.
It’s important to remember that in weather markets, participants focus almost exclusively on the supply side of the supply-demand equation.
Once market participants grasp the supply outlook, attention turns back to demand, Kleist said. It should be noted that throughout the rally, foreign buyers of American corn never panicked, he said, and instead reduced their purchases as prices rose.
At the same time, relatively tight supplies of corn and soybeans could limit declines until traders have better control over crop size, Durcholz said.
Kleinschmidt was cautiously optimistic about the harvest prospects. His corn is largely on schedule, while his soybeans are only slightly behind. A break from the wet weather in mid-July was a welcome relief that allowed the fields to dry up and it appears that pollination has gone well in the area, he said.
Concerns remain, however. The wet weather has left the corn crop with a shallow root system that won’t serve it well if the weather gets hot and dry, Kleinschmidt said. A return to wet weather, on the other hand, would trigger concerns about the harvest from September.