What's Causing the Weather Scare, Grain Prices and Forecast Outlooks
What a difference a week and a weather scare can make in commodity prices even without the help of the Funds that remain short over 100K contracts across the board with the exception of meal. Corn and soybean prices have shown strength this week, ignoring U.S. soybean export data that indicates this trading year is now the 3rd lowest of the past decade. (The U.S./China trade war during 2019 and 2020 drastically reduced export sales to the communist country and are the only 2 years with lower export sales than we have now.) Instead of focusing heavily on export numbers the market has turned its attention to the unfavorable weather forecasts for most of the Corn Belt for the next couple weeks. Some sources are now saying that the end of May into the first week or two of June will be the driest on record. U.S. producers aren’t facing these challenging conditions alone. Dryness is also an increasing concern over portions of Ukraine, Russia and some parts of the EU.
The one issue that could overshadow weather concerns is the debt crisis. Mark Gold from Top Third said, “It is weather vs debt crisis, if we get that solved I think the grains rally significantly. If we don’t and we go into default, it will be a mess.” Negotiations have been ongoing and both sides report progress this week and neither indicated they doubt a deal will be reached before June 1st.
A number of forecasters have been warning of the high probability of a weather scare for weeks. Drought conditions that are being compared to 2012 are developing, surprisingly most people that just haven’t realized how dry it really is. It appears as though the trade is also beginning to recognize the severity of the situation. The developing Super El Niño could intensify the drought in key U.S. growing areas.
Once conditions were fit, corn planting was quickly completed across the I-states and most of the Corn Belt This fast pace is a result of dry planting conditions. While dry fields are welcome during planting season, the newly planted crop needs moisture. This week images of the dryness in the I-states were found all over Twitter.
With all of the comparisons between this year and the 2012 growing season it’s important to see what current conditions look like compared to the same time period in 2012. The first map shown is from May 16th of this year. The following pair of maps show conditions at the beginning of the growing season May 15, 2012, vs those near the end of that growing season August 21st, 2012.
As we enter what is typically the most active period in the severe weather season the national outlook is mostly quiet. A very rare occurrence.
Yesterday was the “final planting date” for farmers to plant corn in North Dakota without penalties in their crop insurance coverage. Final planting dates are quickly approaching for many regions across the nation which is mostly a non-issue except in North Dakota where planting conditions have been especially difficult therefore progress has been slow. It will be interesting to see how many acres move to “prevent plant” acres and how many transfer to another crop. Many traders believe the state will plant substantially less corn acres than the March Planting Intentions report had projected.
Reports show that the Black Sea Grain Initiative that was renewed just last week is not being fully honored by Russia. The agreement originally signed last July allows for the safe passage of grain and foodstuffs from three specific Ukrainian ports, Odesa, Chornomorsk and Pivdennyi. Ukrainian Deputy Renovation Minister Yuriy Vaskov told Reuters that, “They (Russia) have now found an effective way to significantly reduce grain exports by excluding the port of Pivdennyi, which handles large tonnage vessels, from the initiative.” A part of the agreement requires that all vessels headed to Ukrainian ports must be inspected by a joint team including Russian inspectors before they are allowed to enter the ports. Since April 29th Russian inspectors have refused to inspect any ships headed to the port of Pivdennyi which as a result has halted operations there as dozens of ships are now waiting for inspection. This action has effectively cut the port of Pivdennyi out of the safe passage agreement.
Right now, the weather forecasts are the markets primary concern. Exactly why there is so much information about it in this week’s newsletter which began with weather news and will close with in depth outlooks.
Midday yesterday the GFS model showed the potential for the development of precipitation for Illinois, Indiana as well as most of the Corn Belt. That all changed overnight and today both the GFS and EURO models show no rainfall and actually indicate an even drier outlook for Iowa in particular. Could this be Day One of an actual real “crop scare” event?
High pressure has been in control this week and is expected to strengthen a bit today. Humidity levels are extremely low across the Midwest in fact the relative humidity in NC Iowa today is 21%, 4% lower than Phoenix, AZ!
Memorial Day weekend will see a warming trend with temps expected to increase by about 10 degrees between now and Monday. Highs today will range from the upper 70’s to low 80’s, and by Memorial Day we’ll really be turning up the heat with temps reaching from the mid 80’s to 90 degrees. Next week the EURO model is going all-in on summer temps with by far the hottest temps of the year and by Wednesday, if the model is correct, we could see highs about 20 degrees above normal.
The U.S. Climate Prediction Center map below shows areas that are at Risk of Hazardous Temperatures from June 2nd through the 8th. Iowa and Illinois sit directly within one of those areas at highest risk.
The second pair of maps show the well above normal temps expected May 31st through June 4th as well as the much below normal precipitation expected during that same 6-to-10-day period.
The EURO model map below illustrates the rainfall departures from normal forecast for the next 2 weeks.
Dartmouth College climate scientists have researched the costs of El Niño as it relates to weather damage. The study found that the El Niño weather pattern is much costlier to global economies and carries longer lasting impacts than previously thought. In addition, the study looked at who is most greatly impacted from El Niño and the sharp differences this makes around the globe.
Research shows that El Niño typically:
• Reduces Atlantic Ocean basin hurricane activity.
• Produces wetter conditions for much of the South and Western U.S., Peru, Uruguay, Argentina, some parts of SE Asia, and a very small area in east central Africa
• Means drier weather in SE Africa, southern Asia, northern Australia as well as the Amazon region leading to more wildfires in those areas.
• Increases in temperature for most of Asia, the U.S. Pacific N.W. and Australia.
• Costs the global economy on average approximately $3.4 trillion.
“Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free.” - Ronald Reagan