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June 4 – Drought, Midwest Moisture Challenges Grain Traders

farmlead.com, 05.06.19


Grain markets are mixed this morning, as drought concerns in other parts of the world are taking attention away from the wetness in the American Midwest. Today, we’ll walk through some of the forecasts around the world, and potential implications for grain prices.

Soybean, canola, and corn prices are all in the green this morning, but wheat prices are lower, with some profit-taking off the board, as crop progress data from the USDA showing quality conditions are still pretty good. [1] More specifically, 64% of the U.S. winter wheat crop was rated this week as good-to-excellent (G/E), which is up 3 points week-over-week and 27 points better than a year ago. Further, the first crop rating for the U.S. spring wheat crop pegged the 84%e of fields as G/E, up 14 points year-over-year. Those are some bearish numbers for wheat prices, and as such, you’re seeing a bit of the recoil this morning from yesterday’s double-digit gains.

The bigger topic du jour out of the USDA’s crop progress report is the state of Plant 2019 for corn and soybeans. The crop progress report showed yesterday that 67% of the corn crop was in (versus the five-year average of 96%), meaning there is still 30.6M acres of corn left to plant in the U.S. as of this past Sunday! [2] Big props to Scott Irwin of the University of Illinois who nailed the Plant 2019 corn progress for this week, estimating last week that there would still likely be 31 million acres unplanted by this past Sunday.

Moving forward, this includes 12.7M acres across the I-states – Indiana, Illinois, and Iowa – including 6.16M acres in Illinois alone, meaning they’re not even half-finished. [3] Karen Braun and her team at Reuters have been providing some excellent visuals lately, and she reminded us yesterday that, in 2013, the record for one-week productivity was set when we saw 41.8M acres of corn planted in just 7 days! Clearly, give the farmers a window, and they’ll go flat out.

On the flipside, 39% of the soybean crop has been planted (79% five-year average), which means that there’s still 51.2M acres of soybeans left to get planted! [4] Put simply, there’s just a lot of moisture still in the fields and still on the way, meaning it’s extremely tough to make in progress in the fields. Not surprisingly, between the flooding and trade war issues, NPR is labeling this year “chaos” for U.S. farmers. [5] A Farm Journal poll says that at least 1/3 of corn farmers are filing for Prevent Plant insurance on at least some of their acres. [6] Conversely, tomorrow is the last day to be covered for crop insurance if you’re planting corn in Indiana and Illinois, and it’s likely that a lot more acres will go into soybeans instead. [7]

Plant 2019, Then Straight into Drought?

Last week’s U.S. drought monitor showed some abnormally dry conditions in NW Minnesota, northern North Dakota, and NW Montana. As pointed out by Ms. Braun, it’s not surprising then that some of the speediest planting progress has been made in these states. [8] Conversely, the rest of the U.S. (except for parts of Georgia and South Carolina) are getting warmer temperatures and some more rain this week. I’ve mentioned over the past 2 weeks how traders would factor this contrasting wet and dry weather in for not just the likes of corn prices, but also for spring wheat prices. As you can tell from the performance of corn prices and spring wheat prices on the futures boards, May was a good month for rebounding.

For the latter though, there are some profits being taken off the board this morning as there is some rain in the forecast (and in some areas, thunderstorms) for this coming weekend in Alberta and Saskatchewan, which would provide relief for those Western Canadian spring wheat fields. Manitoba is looking like it might miss the rains though, along with drought-related parts of North Dakota and Minnesota. The moisture would certainly be welcome, especially after the past few days of hot temperatures across the Canadian Prairies.

Looking more long-term, The Weather Network is expecting normal temperatures to return to Alberta and Saskatchewan, but they are expecting Manitoba, the Northern Plains, and western Corn Belt to see below-average temperatures through the summer. [9] Conversely though, those same areas are expected to get even more rain.

What About Drought Elsewhere?

The Black Sea is getting a little drier and that’s starting to spark some headlines. [10] Some “intense heat” has been seen in southern parts of the region, and it’s expected they’ll see limited moisture and more heat in the coming days. This is happening just as their winter wheat harvest starts to get going but the spring wheat crop is trying to get out of the ground. IKAR says that Russian farmers have planted 26.7M acres of spring wheat this year, 35% or 6.9M acres more than the same time a year ago. However, the drier conditions has been enough of a catalyst for SovEcon to downgrade their wheat production forecast. Will the USDA follow their lead next week in the June WASDE report, out on Tuesday, June 11th?

In India, the Meteorological Department there says that this year’s monsoon rains will be near normal, but they’re going to be delayed by about a week. [11] India experienced a very, very dry rabi/winter growing season, and as a result, moisture and reservoir reserves are well-below average. [12] I’ve said it a few times in the past, but unless you see a poor monsoon season and a negative impact on the kharif/summer growing season in India, it’s unlikely that India will lift their import tariffs on pulses.

Finally, we land in the Land Down Undaa, who has been under a drought for the past two years. Better make that three though as Australia’s Bureau of Meteorology says there won’t be much relief from drought conditions in the next three months. [13]

While most of the drought is in Eastern Australia, this is also where the majority of Australia’s higher protein wheat is produced. We’ll see in next Wednesday’s crop report from ABARES if they’re acknowledging said drought yet. Since we know that Australia is already importing high protein wheat from Canada, the third year of drought might make them a consistent buyer in the coming crop year. Very concretely, the dry weather would be bullish for Canadian barley and spring wheat prices, something that I timestamped back in February.

P.S. Tomorrow is Camp Day at Tim Hortons – buy your coffee & 100% of the money goes towards getting underprivileged kids to summer camp. Being caffeinated very felt so good!

https://farmlead.com/blog/breakfast-brief/june-2019-drought-australia-india-canada/



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