USA - Swings in weather and forecast lead to market swings

24.06.2022 205 views

The third week of June was advancing well for the grains as most contracts were posting small gains to modest losses approaching the end of the week. But a massive sell off on Friday, June 17, seemed to change the narrative. By the time the dust settled on the third week of June, all of the grains were posting losses except for corn and soybean meal. Wheat and soybean oil were the worst performers.

Although there is just a small correlation between the grains and the stock market, the Federal Reserve’s decision to increase interest rates 0.75% on Wednesday, June 15, sent shock waves through all of the markets. The Federal Reserve is trying to get a handle on inflation and according to Chairman Jerome Powell’s comments after the meeting adjourned, it is likely we will see another 0.75% increase in their next meeting in August and then a 0.5% increase in their September. meeting.

Early week gains were supported by weather forecasts calling for the next two weeks to bring much above normal temperatures for the entire Corn Belt as well as below normal precipitation. The northern Plains also had above-normal temperatures, but for only a short four days over the long weekend, not for two weeks like the Corn Belt had been expecting.

Informa released their updated acreage estimates. Informa is now estimating all wheat acreage at 46.441 million versus USDA’s Prospective Plantings estimate of 47.35 million. Their other spring wheat acreage estimate is now at 10.49 million versus 10.15 last month and versus USDA Prospective Planting’s estimate of 11.2 million. Durum’s acreage is estimated at 1.715 million versus March’s estimate of 1.915 million. Their updated estimate from corn is at 90.965 million versus 90.51 million last month and versus USDA’s March estimate of 89.49 million. Soybean acreage is estimated at 88.735 million versus 89.015 million last month and versus USDA’s estimate of 90.955 million.

Another supporting factor came from continued reports of stronger than usual basis levels for corn and soybeans. This is either a signal of strong domestic demand or tighter than expected supplies of old crop. The adverse weather conditions have led to end users trying to get out and secure enough product to get them into new crop harvest.

The grains opened the fourth week of June under pressure with most of the selling tied to improving weather forecasts. Traders are pulling weather premium out of the market as long-term weather forecasts are now calling for cooler and wetter conditions. Although forecasts are calling for the Corn Belt to see much above normal temps and below normal precip for the next week, long-term forecasts have the heat moderating. The six-to-10-day forecast is calling for the northern Plains and western Corn Belt to see below normal temps while the central and eastern Corn Belt experience normal temps and the southern Plains and Delta has above to much above normal temps. Precip is expected to be normal to below for the Plains and Corn Belt.

The eight-to-14-day forecast is calling for northern North Dakota and northern Minnesota to see normal temps while the rest of the eastern two-thirds of the country has temps above to much above normal. Precip is expected to be normal for the entire region except for western Corn Belt which is expected to see below normal precip.

If realized, the on-and-off-again heat mixed with rain will be bearish, as it will create a greenhouse effect and help push the crop without putting much stress on the plants. Of course, all it would take for this forecast to turn bullish would be for the temps to be just a little warmer than expected or the rain a little less than expected.

Officials in Ukraine are estimating the final spring planted acreage came in 21% below last year. This has a lot of traders concerned on how much crop Ukraine will be able to get planted this fall, which is when most of the country’s wheat is planted.

The June 21 Crop Progress report was friendly to the grains as it confirmed declining conditions due to last week’s hot, dry weather. The report confirmed corn planting has wrapped up and that last week’s heat did do some damage to the crop. Corn’s crop condition rating dropped 2% to 70% good/excellent, a slightly larger than expected decline. What was more interesting is where the declining conditions showed up: Illinois’s corn crop dropped 6% last week while Indiana’s slipped 4%, and Iowa’s declined 3%, all due to the hot dry conditions. But the western Corn Belt saw conditions improve due to the heat as Minnesota improved 7% and South Dakota’s conditions improved 3%. North Dakota was caught in the middle as conditions dropped 2%. This confirmed that the recent week’s weather was a little harder on the crop than expected. And it is likely the central and eastern Corn Belt will see conditions decline again in the June 27 report.

The soybean crop was not much better. Crop conditions dropped 2% to 68% good/excellent, again slightly worse than expected. And again, it was the central and eastern Corn Belt that saw the worst conditions (Illinois dropped 10%, Indiana declined 3%, Iowa dropped 2%) while the western Corn Belt improved (Minnesota up 3%, North Dakota up 4%, and South Dakota up 8%). Like corn, it is likely soybean conditions will decline again next week due to this week’s much above normal temps in the Corn Belt.

Winter wheat harvest made good progress last week as estimates have 25% of the winter wheat crop now in the bin. As expected, winter wheat conditions declined 1% to 30% good/excellent. Colorado took the biggest hit, dropping 7% while Oklahoma dropped 3%.

Spring wheat planting is still moving forward. As of June 19, 98% of the spring wheat crop was planted, 1% less than expected. But the heat was definitely something the spring wheat crop needed as conditions improved 5% to 59% good/excellent. This was 6% above expectations. Minnesota’s crop improved 9% while North Dakota’s crop saw a 4% increase in ratings.

The vegetable oil market has been the worst performer lately, with soybean oil taking a beating the past few weeks. Most of the pressure is due to Indonesia getting back into the palm oil export game. Indonesia approved export permits for another 1.4 million metric tons of palm oil. The recent sell off in palm oil has brought prices down to the lowest level since February.

July options will expire Friday, June 24. First notice day for July futures will be June 30. USDA will release their Planted Acreage report as well as their Quarterly Grain Stocks estimate on June 30.

Cattle closed mixed last week with live cattle pushing higher due to a stronger than expected cash trade. Feeder cattle struggled due to the stronger corn market. But that trend has so far reversed during the fourth week of June. Live cattle have started to waffle under the pressure of adverse weather conditions. The hot dry conditions are creating havoc for feed yards in the southern Plains as death loss is skyrocketing. The hot, dry conditions are also resulting in poor feedlot performance and likely backing cattle up. This is adding pressure to the live cattle. Feeder cattle are seeing some spill over support from the lower grains.

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