Feeding the Bulls and Finally a Warm-up
Big bull markets are driven by big bulls that need a steady supply of fresh bullish stories to keep driving prices higher. In fact, corn contracts posted highs recently that came within $0.20 of the all-time high of $8.43 in August 2012. There are several major global issues all occurring at the same time. Each of these would be considered significant on their own but in conjunction with each other they have stirred up uncertainty and instability around the globe and is being closely monitored by the markets.
• Dry conditions in Brazil have reduced yield potential for the 2nd and largest corn crop grown in the country each year.
• Planting in the U.S. is far behind the average pace and weather forecasts still show the chance for more precipitation which has rekindled the acreage debate once again.
• Ukraine, the 4th largest global corn exporter has many problems. They have an estimated 30% of the crop planted but now I’m hearing stories that some farmers are running out of diesel fuel and having to park their equipment and will likely not be able to plant the remaining acres. Export issues will remain a major problem for the country for a long time to come and without the ability to ship out last season’s grain how will they store the crop that does get planted? They have a surplus of last seasons corn and winter wheat will soon be harvested and it remains unclear where it all will be stored.
It's early May and still little planting progress has occurred. The one positive out of the wet start to spring 2022 is the increase in soil moisture across the parched Northern Plains and areas to the East. Summer months are still forecast to be hot and dry from the Rockies to the Appalachians and drought is expected to hold-on or worsen in the Plains while some areas to the east could see the development of flash drought. Once we are able to get into the fields the crop should be able to get well established which should limit yield losses once the hot and dry summer months arrive. The USDA as of May 1 reported that 14% of the U.S. corn crop has been planted vs the 5-year average of 33%. Last spring planting got off to an unusually fast start with 42% of the corn crop already planted by May 1. The planting pace in 2022 is now the slowest since 2013.
South American crop consultant Dr. Michael Cordonnier has cut his estimate for the Safrina crop in central Brazil. His latest evaluation of 107 MMT is 5 MMT less than his last forecast. This amounts to a 10% reduction in the driest states of Mato Grosso, Goias, Minas Gerais and the Federal District which haven’t seen much moisture in 30 to 50 days. The La Niña weather pattern effecting SAM has escalated dramatically in April which led to the early breakdown of the monsoon season about 2 weeks earlier than normal. (GrainCentral) Dr. Cordonnier’s estimate is well below the current StoneX estimate of 116.5 MMT and last month’s USDA estimate of 116 MMT and there is little chance of precipitation in next week’s forecast. The extremely dry month of April could convince the USDA to update their Brazil corn yield estimate in the report next week. As if Ukraine wasn’t already dealing with a nearly impossible export situation with ports to the Black Sea blocked or damaged, now we are learning they are faced with “unreasonably” high tariffs at the Danube Port. An official with the interior ministry said on Facebook that due to the situation at the nation’s ports grain was being sent by rail across the western border and through ports along the Danube River. Before the war started the transshipment rates at the ports of Reni and Izmail were $5 to $6 per metric ton but increased to $12 euros when the war began. In April the rate was increased once again, this time to $15 euros per metric ton but May brought another increase, bringing the cost up to $20 per metric ton. Ministry advisor Denysenko said “I understand earnings, but a fourfold increase is no longer a market, it’s blackmail.” (Reuters) Warm weather is finally forecast to arrive over the weekend with the major warm up starting Monday. The bar graph below shows the forecasted highs and lows through May 20th in southern Iowa, quite a contrast from the last 6 weeks. And this time the GFS and EURO weather models are in agreement!
The map below shows the expected dew points for Tuesday. Notice they are in the mid to high 70s on Tuesday, the first time this year they have reached above the low 60s. Add these high dew points with the forecasted high temps and heat indexes with soar. This increases instability in the atmosphere which raises the potential for severe weather.
The following map illustrates the extreme CAPE (instability) that is expected on Tuesday. It’s too far out to know for certain but many forecasts are warning of the possibility of an explosive set-up developing Tuesday or Tuesday night.