Technical Thursday? Corn and soybean prices took the path of least resistance, which is lower according to the charts. This is painful to watch. Lets just hit the targets and move on, shall we? May corn finished the day 3 1/2 cents lower with December down nearly a nickel. Nearby soybeans settled 15 cents lower with November down 12. July CBOT wheat closed 3/4 cent higher, KC up 6 and MPLS rallied 3 3/4 cents. The Funds sold 30 million soybeans and 10 million corn on the day.
Outside markets were relatively calm. The Dow finished 22 points higher, gold was up $6 and oil was slightly lower. The dollar index was up .200 points.
Today’s Export Sales report was not supportive to prices. The strong dollar is hurting sales, along with the steep competition from our global competitors. Brazil beans are running 50 cents bushel cheaper than the US. That is not surprising given it is harvest time in Brazil. Flat price offers from Russia are undercutting US HRW offers by $1.60 bushel. In addition, China cancelled previous wheat purchases in this week’s report.
Corn sales were neutral, with future sales hinging on the size of the South America crop. The safrinha crop received rains recently and sitting in good shape. The forecast for the next 10 days is dry, and they are entering their dry season. Argentina, the worlds 3rd largest corn exporter, is witnessing widespread crop damage. They expect to lower their corn production estimate another 1-2 mmt as they are seeing 40-50% loss in the northern provinces. Obviously, the market doesn’t care at the moment.
Every Thursday we get an updated drought map. We have seen improvement in many areas, but as you can see from the map, there are several states in the WCB that are drier than a year ago. Iowa, Minnesota, Wisconsin, southern IL and Missouri are still thirsty, but rain is on the way.
Drought has be an issue the past two years and has affected shipping along the Mississippi. Below is a comparison of the profile of moisture in the top 40 inches of soil. The map on the left is from Jan 1 of this year. The graph on the right is today’s profile. We have seen massive improvement.
The NWS updated their 1 and 3 month forecasts today. The one month forecast looks like it may present planting issues for some areas. There is zero weather premium built in prices. Come next week, it might be a different story. Both the 6-10 day and 8-14 day forecast is warm and wet for the entire Midwest. Those forecasts take us into the first of May.
The 3 month forecast (May-June-July) also was released. It looks like a warm summer, with a mixed outlook on precip. NOAA is predicting an 85% chance of ENSO-neutral conditions to develop between now and June. In other words, the pattern is transitioning from El Nino to La Nina.
The experts give 60% odds of La Nina developing by June-Aug. If La Niña develops, the “equal chances” for rainfall over the central U.S. would likely switch to “below normal.” Timing is everything.
This year is being compared to 2010. In that year, there was a rapid transition from El Nino to La Nina. Late summer dryness and hot temperatures trimmed yields. Corn production was forecasted at record levels in August, but final numbers were down 7%.
Genetics are much, much improved versus 14 years ago, so perhaps yields would not suffer as much. It is going to be extremely difficult to convince traders that we can hurt a corn crop. We have cried wolf for two years, only to have record crops amidst a drought. So, traders may be right in the end. Many producers were surprised over corn yields this past year given the lack of rain.
However, traders are going into the growing season with a near record short position in both corn and soybeans. If traders bet wrong, not everyone can get out of their positions at the same time. End-users are also buying hand to mouth. It would be the perfect storm. Or not, if we are blessed with normal weather this summer. It would be great to have a crystal ball.
Good Night.
