By John DePutter & Dave Milne – June 12, 2018
“July weather is usually the key metric for determining corn yields, and most years, prices. But without gaining some backbone soon, futures’ rallies in a month or so may be short, and maybe not all that sweet.”
– Farm Futures, June 6, 2018
What it means:
With the crop in the field looking good, prices are admittedly suffering. But there’s still time.
As noted in the above article, July is the month when the rubber really hits the road for the corn crop. It’s during this month the crop goes through its critical yield-determining stages of development, ultimately setting the stage for the actual level of production.
The basic laws of supply and demand apply here: the bigger the crop gets, the smaller the price gets. And since weather holds the most sway over production, the market is hyper sensitive to Midwest forecasts. So far at least, the weather has been the crop’s friend. Yes, there are some minor areas of concern – pockets of drought in Missouri, for example – but overall conditions are favourable, as evidenced by the historically strong weekly crop condition ratings.
Indeed, one look at the July corn chart below tells you all you need to know about the weather thus far.
The new-crop December chart looks similar. On Monday the Dec future slid below the US$3.90/bu mark. This after trading above $4.25 for the better part of four days in late May.
Most analysts and traders aren’t ready to accept the idea the US corn yield could exceed last year’s super-sized tally 176.6 bu/acre. But if we get into the dog days of summer and the crop still looks great, a 178 to 180 bu average would enter the realm of possibility.
In that event, there’d be no reason why the Dec future couldn’t spend time down around US$3.50.
Corn supply in decline
All that being said, what’s really important to keep in mind here is it’s still early. In almost every year, there are at least some weather scares that come along. And it’s likely that things will dry down and heat up at some point, regardless of what current long-term forecasts may be suggesting about July weather.
What’s also important to remember is that both US and global corn supplies are currently forecast lower in 2018-19. Final 2018 US corn planted area will be revealed in a USDA report later this month, but the March prospective plantings report said American farmers would reduce corn acres by about 2.4% this year. At the currently estimated 174 bu/acre, the USDA is projecting a new-crop US corn supply-demand scenario that would see ending stocks decline by about 525 million bu or almost 25% from the previous year.
Globally, 2018-19 corn ending stocks are projected by the USDA down almost 20% from the previous year.
The point is, even with some upward potential in the average yield, this does not look like a market that’s going to easily tip into a heavy, price crushing, sub US$3/bu surplus. And certainly a dip to that level would be hard to justify before harvest.
And if by chance the weather in July does turn out hot and dry, there’s a chance for some particularly strong price gains.
Will the market offer clues? Quite possibly!
The DePutter team is monitoring the weather and other indicators and factors.
We’re also regularly pouring over the chart patterns and the way the market responds to weather news, which will sometimes offer tip-offs when dips are bottoming and rallies are peaking.
Want to get our buy/sell strategies during the critical weather period ahead? Subscribe to our daily Ag-Alert hotline and weekly newsletter.
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