Wet weather affecting grain and oilseed markets

by Ron Sterk
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Wet weather has affected the market, but forecasters see favorable conditions for the rest of the growing season.

Weather typically is a principal fundamental market feature during spring planting and summer growing seasons for fall row crops, as well as for winter wheat harvest. This year the impact may be even greater as a wet spring has slowed winter wheat harvest, prompted quality concerns and slowed row crop planting after a fast start, while a strong El Niño already is affecting conditions globally.

The spring planting season got off to a roaring start with seeding of fall crops well ahead of the normal pace in many areas. On May 3, corn in the 18 major states was 55% planted, well ahead of 28% at the same time last year and 38% as the 2010-14 average for the date, the U.S. Department of Agriculture said. By May 31, planting was 95% completed, just slightly ahead of 94% both a year earlier and as the five-year average.

The slowdown was more dramatic in the 18 major soybean states, with soybeans typically planted about three weeks after corn, which this year coincided with a turn to wetter weather. Soybeans were 45% planted on May 17, ahead of 31% a year earlier and 36% as the five-year average for the date. As of June 7, soybeans were 79% planted, behind 86% last year and 81% as the average pace. Cotton was 81% planted as of June 7, lagging the average pace of 89%, and sorghum was 56% planted, behind the 68% average. The June 30 U.S.D.A. Acreage report will be closely watched this year to see if farmers planted all the fall crops they intended.

The weather so far may be having the greatest impact on winter wheat. The winter wheat harvest was under way with just 4% completed as of June 7 in the 18 major wheat states, behind 8% at the same time last year and 12% as the five-year average. Heavy rains and flooding in recent weeks across parts of the southern Plains hard red winter wheat region kept combines from rolling, and more importantly, have created concerns about sprouting and other undesirable quality issues. As of June 7, wheat was 20% harvested in Texas, compared with 30% as the 2010-14 average, 13% in Oklahoma, compared with 37% as the average, and zero in Kansas, compared with 8% as the average.

The same problem has been seen in soft winter wheat states across the South, with wet weather boosting prospects of vomitoxin, which also was a problem in the 2014 soft red crop, as well as delaying harvest. In most states from Missouri to North Carolina and south, wheat harvest was running 5 to 25 percentage points behind the average pace.

The soil moisture change across the entire Great Plains, and especially the southern Plains, has been dramatic. The U.S. Drought Monitor as of June 9 showed only a handful of pockets of abnormally dry areas from the Canadian border through Texas, compared with most of the Great Plains in moderate drought with a fairly large area in southern Kansas, western Oklahoma and northern Texas in extreme to exceptional drought just two months earlier.

Drew Lerner, president of World Weather, Inc., Overland Park, Kas., and a presenter at the Sosland Purchasing Seminar held in early June, said the recent rains have ended the four-year drought across parts of the southern Plains, as well as drought that was developing in the central and northern Plains, including Canada’s key Prairie Provinces. Only California and parts of Nevada remain in exceptional drought, and even that may be relieved by El Niño-induced rainfall in the coming months, Mr. Lerner said.

Quality aside, rain makes grain unless there is too much of it. In its June 10 Crop Production report, the U.S.D.A. estimated 2015 winter wheat production at 1,505 million bus, up 2% from its initial estimate in May and up 9% from 1,378 million bus in 2014. Production in Texas was reduced by 9% and in Oklahoma by 3%, while Kansas increased 16%, which some crop observers suggested may have resulted from some type of counting or statistical error in the state’s low May yield number.

David Salmon, owner of Weather Derivatives in Belton, Mo., said his crop model has showed a yield of 36 to 38 bus an acre for Kansas since early April. The Wheat Quality Council’s hard winter wheat tour average yield for Kansas was near 36 bus an acre in early May. The U.S.D.A. forecast was 32 bus an acre in May and 37 bus an acre in June, which accounted for all of the 42.5 million bu increase in Kansas production from May.

Wheat futures prices tumbled following the 11 a.m. Central time release of U.S.D.A. Crop Production and World Agricultural Supply and Demand Estimates reports on June 10. Kansas City hard red winter wheat contracts fell about 17c to 20c a bu, Chicago soft red winter wheat lost about 16c to 18c a bu, and Minneapolis spring wheat declined about 16c a bu. Those losses came on the heels of two-month highs in Chicago and Minneapolis and two-week highs in Kansas City contracts just a day earlier.

In its WASDE, the U.S.D.A. forecast total U.S. wheat production at 2,121 million bus, up 5% from 2,026 million bus in 2014, using survey-based winter wheat numbers and trend data for spring wheat. Prospects are good for spring wheat, with the crop in the six major states rated 69% good to excellent as of June 7, slightly below 71% at the same time in 2014. U.S. wheat carryover on June 1, 2016, was projected at 814 million bus, up 3% from its May projection, up 14% from 712 million bus estimated on June 1, 2015, and the highest since 2011.

The average cash price for wheat paid to farmers was forecast by the U.S.D.A. to range from $4.40 to $5.40 a bu in 2015-16 (which began June 1), with the midpoint of the range of $4.90 a bu down from $6 a bu in 2014-15, down from a record high $7.77 a bu in 2012-13 and the lowest since at least 2009-10 if realized.

With 2015-16 world wheat production forecast to be the second highest on record after last year and global ending stocks above last year’s level, one could say the world is “awash” in wheat. The same could be said for corn and soybean supplies. Although global production of corn and soybeans is expected to decline from 2014-15, mainly because of lower outturn in the United States after record high production of both crops in 2014, stocks remain near the highest levels in years, especially in the United States. As a result, the U.S.D.A. projected the average price of corn to range from $3.20 to $3.80 ($3.50 midpoint) a bu in 2015-16, down from $3.65 a bu in 2014-15, down from a record $6.89 a bu in 2012-13 and the lowest since 2006-07 if realized. The average soybean price was forecast to range from $8.25 to $9.75 ($9 midpoint) a bu next year, down from $10.05 a bu this year, down from a record $14.40 a bu in 2012-13 and the lowest since 2006-07 if realized.

The next key period for weather will be during summer corn pollination, which is expected to peak a couple weeks earlier than normal because of the early start to planting this year. Meteorologists suggest moisture supplies and new rainfall should be adequate for that key period.

Despite the rough patch from excess moisture during May and early June, the outlook for the rest of the growing season suggests favorable conditions for crop development, which should translate into good yields, big crops and limited upward price potential for the major crops.

The first survey-based corn, soybean and spring wheat production estimates are about two months away (Aug. 12).

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