Crop weather worries market

Crop weather worries market

- Corn planting 2% completed, down from 16% last year. - Red River flooding could present major problems. - Drought expected to intens

WITH planters rolling in some parts of the country, the market's attention has turned squarely to the weather.

While traders and analysts continue to ponder -- and openly second guess -- the U.S. Department of Agriculture's latest supply and demand projections, most market analysts are watching meteorological developments for indications of whether the 2013 crop will either be a bin buster or another drought-stricken disaster.

Spring 2013 stands in stark contrast to last year's historically early planting season. According to the National Agricultural Statistics Service, only 2% of the nation's expected corn acreage had been planted as of April 14, compared with 16% for the same date in 2012 and well behind the five-year average pace of 7%.

Similarly, only 6% of spring wheat acres have been sown, down from 33% at this time last year and off the 13% average. Winter wheat development is also off schedule at 4% headed, down from 28% last year and the 12% average.

Given the slow pace, the market is starting to consider that farmers may not plant the 97.28 million acres of corn USDA predicted in its March "Planting Intentions" report and may instead seed additional acres of soybeans.

According to the National Oceanic & Atmospheric Administration's (NOAA) monthly data, March 2013 was the coolest March since 2002 and the fifth-driest March in history.

According to the April 2 "U.S. Drought Monitor" report, 51.9% of the U.S. was experiencing moderate to exceptional drought, smaller than the 54.2% at the end of February but significantly higher than 36.8% at the beginning of April 2012. Drought conditions improved in parts of the Southeast, as well as the eastern edge of the core drought areas in the central and southern Plains due to increased precipitation over the past three to six months.

Drought remained entrenched across the rest of the Great Plains and interior western states, and the specter of a multiyear drought is top-of-mind for many farmers and feeders.

Crop weather worries market
The U.S. Climate Prediction Center's most recent seasonal drought outlook calls for conditions to improve in the eastern half of the U.S., but conditions are likely to persist or intensify for the western U.S. through July 31 (Map).

NOAA's 90-day climate projections suggest that the southern third of the U.S. will experience drier-than-normal conditions, but the eastern Corn Belt will receive larger-than-normal volumes of precipitation, perhaps further complicating early planting efforts. Warmer-than-normal temperatures are predicted for the entire country outside of the Pacific Northwest.

Globally, March tied with 2006 as the 10th-warmest March since recordkeeping began in 1880. NOAA noted that the month marked the 37th consecutive March and the 337th consecutive month with a global temperature above the 20th-century average — since February 1985.

With the broad disparity between U.S. planting progress this year and last, University of Illinois crop sciences professor Emerson Nafziger cautioned that there is no need for farmers or the market to panic -- yet.

"Wet soils warm more slowly than dry soils, so with soils both wet and cool, we need to be ready for some 'patience-requiring' weather," Nafziger said. "While planting date responses vary among years and sites in our research, we can consider the planting date response to be flat for the month of April, with losses starting to pick up slowly in early May."

He warned eager producers that the damage caused by working or planting into soils that are too wet can more than offset the gains related to early planting.

At the other end of the meteorological extreme, flooding in the Red River Valley is projected to be significant this season and later than normal by quite a bit. Snow in Minnesota over the last week belied the fact that, according to the calendar, spring is already one-third complete.

Meteorologist Drew Lerner with World Weather Inc. noted last week that snow in the Canadian prairies and northern U.S. Plains and Upper Midwest is still unusually deep, exacerbating the possibility of flooding in a region that has grown more corn acres in recent years.

"The environment will change soon so that significant warming occurs in north-central parts of North America, and that will bring on a significant flood event that will be recorded in history as the latest ever in the Red River Basin of the North," Lerner told clients. "Spring fieldwork in the northern Plains and Canada's prairies may end up a month late depending on how quickly the snow melts over the next few weeks and how much new precipitation falls."

Lerner noted that snow water equivalencies in southern Canada, the Dakotas and Minnesota could tally 6 in. or more of water that will essentially be dumped all at once across millions of acres of productive farmland. While these regions are typically known as major wheat areas, their importance for corn production has grown significantly in recent years.

University of Illinois Extension farm business management specialist Gary Schnitkey reported in March that a large, contiguous set of counties in eastern North Dakota, northeastern South Dakota and western Minnesota saw increases of more than 60,000 acres of corn between 2006 and 2012. According to his analysis, this area in the Upper Midwest saw the most pronounced shift in corn acres of any area in the country (Figure).

Crop weather worries market

 

Market recap

The market struggled to find a consistent direction last week as both bullish and bearish fundamental information battled for supremacy in the pits. Concerns over how the weather will affect planting progress and final acreage led traders to start thinking about less corn and more soybeans, while export demand signals were mostly mixed at best.

Prices ended the previous week on a positive note as ethanol production hit a multi-week high in early April and export demand for soybeans remained unseasonably strong. By last Monday, however, China's recent avian influenza-related challenges gripped the market and sent prices for corn and soybeans lower.

The National Oilseed Processors Assn. released its March crush report, showing that 137.08 million bu. of soybeans were crushed in March -- a little larger than February but actually lower than last year.

Farm Futures market analyst Paul Burgener noted that crush demand remains strong, especially given the still relatively high price of soybeans and tight supplies. The unabated crushing pace shows that crush margins still are strong enough to keep soybeans moving into the pipeline.

Grain and oilseed prices rebounded by midweek on concerns about slower planting progress and a solid outlook for soybean demand. The crush report, coupled with South America's struggles to get soybeans shipped this season, have kept traders mostly upbeat about the prospect of continued support in the soybean pits.

Last Thursday's weekly export data were positive for both corn and soybeans, with old-crop corn sales reported at 15.8 million bu. and shipments up 8% from the previous week. Old-crop soybean sales were up 6% for the week, but shipments hit a marketing year low of 6.65 million bu.

 

Ingredient watch

One of the biggest concerns to emerge in recent weeks is farmers' willingness to market old-crop corn and soybeans. Basis levels have remained strong in an effort to get farm-held supplies out of the bins and en route to end users.

The soybean basis was especially strong last week, gaining more than 20 cents/bu. along the inland waterway system as shippers struggled to meet unusually strong late-season demand. Brazil's woes in shipping soybeans abroad has put already thin U.S. supplies back into play on the global market.

Meanwhile, USDA's March "Grain Stocks" report found that farmers held nearly half of the nation's 5.4 billion bu. of corn in bins as of March 1, meaning merchandisers have to bid more aggressively for bushels.

Volume:85 Issue:16

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