Wet weather unsettles market outlook

by Ron Sterk
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A combination of excessively wet weather and bullish U.S. Department of Agriculture data recently sent grain and oilseed prices well above expectations as the second half of 2015 began.

A combination of excessively wet weather and bullish U.S. Department of Agriculture data recently sent grain and oilseed prices well above expectations as the second half of 2015 began.

While cool, wet weather typically is favored over hot, dry weather during the growing season, too much of a good thing also may be bad. Consistent, above-average rainfall this spring and early summer has delayed hard red and soft red winter wheat harvests and given rise to significant quality issues in the soft red crop. Heavy rainfall and flooding have hampered the completion of soybean planting and endangered the vigor of crops across parts of the Corn Belt and other areas. Cool, cloudy weather also raised concerns that warmer temperatures may fall short of what is needed for corn and soybeans to reach full yield potential, although wet weather is preferred over hot, dry weather during the key pollination period for corn, which is under way in most areas.

Illinois, typically among the nation’s leading soybean, soft red winter wheat and corn producers, recorded the wettest June in records going back to 1895. Missouri, one of the top soft red winter wheat states and the among the larger soybean states, still had about 1.5 million acres of intended soybean area to plant on July 5, much of which likely won’t be planted after last week’s continued wet weather. Nationwide there remained about 3.4 million acres of intended soybean area unplanted as of July 5, which may pull final plantings below the record 85.1 million acres estimated in the U.S.D.A.’s June 30 Acreage report.

Already buoyed by weather concerns, June 30 U.S.D.A. Acreage and Grain Stocks data sent corn futures prices up as much as 36c a bu, or 9%, and soybean futures up more than 44c a bu, or 4%, in the week ended July 2 (markets were closed July 3). Wheat futures mostly followed corn and soybeans higher, posting gains of about 15c to 25c a bu for the same week, even if the U.S.D.A. data was less than friendly for wheat. Short covering also contributed to the run-up in prices, trade sources said.

Chicago soft red winter wheat futures prices closed near $6.15 to $6.31 a bu on June 30, up $1.10 to $1.50 from lows in early May and about 10c to 15c above year-ago levels, although deferred prices were at modest discounts to year-ago. Prices for Kansas City hard red winter futures were near $5.93 to $6.53 a bu, up about $1 to $1.10 from May lows but still about 80c to $1.20 a bu below year-ago levels. Minneapolis hard red spring wheat futures on June 30 were near $6.22 to $6.71 a bu, up 90c to 95c from May lows but about 40c to 65c under year-earlier values. Although not directly comparable to by-class prices, the U.S.D.A. in its June World Agricultural Supply and Demand Estimates forecast the 2015-16 average price paid to farmers for all wheat to range from $4.40 to $5.40 a bu, compared with $6 a bu in 2014-15 (ended May 31).

The U.S.D.A. in June forecast 2015-16 corn prices paid to farmers to average in a range of $3.20 to $3.80 a bu, compared with $3.55 to $3.75 a bu in 2014-15. Old crop corn futures on July 2 were $4.19¾ to $4.28½ a bu and new crop futures (2015-16) ranged from $4.36½ to $4.55½ a bu. Futures prices on July 2 were about 2c to 20c above year-earlier prices with the widest premiums in new crop contracts.

Cash soybean prices in June were forecast by the U.S.D.A. to average in a range of $8.25 to $9.75 a bu in 2015-16 compared with $10.05 a bu in 2014-15. Old crop soybean futures on July 2 were $10.31½ to $10.45¼, and new crop prices (2015-16) ranged from $10.12¾ to $10.35¾ a bu. Soybean prices still were well below year-ago levels at midyear.

Prices pulled back last week as the wheat harvest advanced, the dollar strengthened (seen as negative for exports) and corn and soybean condition ratings steadied. Though prices may decline further if weather cooperates, values for the three major commodities still were above most forecasts from earlier in the year.

What looked to be a promising year in March and May, with corn and soybean crops expected to be down only modestly (3% to 4%, respectively) from record outturn for both in 2014, and with soybean area estimated record high, has instead turned into a season of concern about production levels for corn and soybeans and about milling quality for wheat, mainly soft red winter.

The hard red winter wheat crop may be the surprise of the year, coming in with yields and quality above expectations after a dry start last fall followed by a wet harvest season, but the crop still is expected to grade below last year’s crop.

While there were adjustments to grain and oilseed supply, use and price forecasts in the July 10 Crop Production and WASDE reports, weather will be the key director of prices in coming weeks. The first survey-based corn and soybean production numbers will not be issued by the U.S.D.A. until the Aug. 12 Crop Production report.

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