By John DePutter & Dave Milne – February 11, 2020
“Despite a much milder-than-usual winter so far, AccuWeather’s spring outlook is pointing to possible planting delays in some parts of the US.”Syngenta Market News, February 10, 2020
What it means:
After last year’s experience, planting delays may not create the same sense of anxiety.
Typically, corn futures prices rise in the spring as the market begins to incorporate a risk premium to account for potential weather problems as farmers head to the field to plant that year’s crop. Reams of research have consistently pointed to timely planting as one of the main tenants of strong yields, so the corn market tends to want to move higher until it is assured Mother Nature has cooperated enough for farmers to get the bulk of their crops in the ground in good time. For the majority of producers in the American Midwest, that usually means the first few weeks of May.
2019 planting late
But we all remember what happened last year. In the wake of heavy late-season snow, quickly rising temperatures and then large amounts of rain, many parts of the Midwest started to flood and never dried out for months.
As a result, by the end of May, when nationwide corn planting would normally be finishing up for the year, only about half of the crop was actually in the ground. Indeed, it would not be until late June that national planting finally neared an end. Even then, some individual states – such as Michigan – still had as much as 10% of the crop still to go.
Predictably, with the corn crop being planted so late, condition ratings were consistently below average throughout much of the growing season while development lagged far behind the usual benchmarks. By the fourth of July, some corn really was just knee-high – rather than at the shoulder or higher.
Fearing a major yield and production hit, the corn futures market rallied from around US$3.35/bu in early May to around $4.60 by late June. That move really stood out on the charts – a 37% percent increase!
Production held up
But somehow it all turned out ok. Jack Frost didn’t make an early appearance in the Midwest and, despite some challenging weather again in the fall, most of the crop made it to maturity.
At an estimated 13.69 billion bu, total production only ended up down 4.5% from a year earlier and the average national yield, at 168 bu/acre, was just 8.5 bu below the 2018 average, according to the USDA.
Weather will still matter, but . . .
It is often said that during the key spring and summer production months, nothing matters to the markets more than weather. That will always continue to be true, just given the outsized impact the weather can ultimately have on final production.
However, if this spring really does turn out to be wet and planting is once again delayed, this past year’s experience may mean that the worry among farmers, traders and analysts will be kept within the proper context.
Look at it this way: Once burned, twice shy!
People who jumped on the bullish side of the last spring and got burned when prices failed to keep rising on ideas of a badly-damaged crop will be more careful this year. They won’t be so quick to think it’s a good idea to take bullish positions based on a late, wet spring.
So, even if Accuweather is right and the Americans do get into a late-planting predicament, be careful about thinking it’s going to boost corn prices up to a great, higher level. It will help lift the market, no doubt, but it might be a good idea to keep your expectations realistic.
What do we mean by “realistic?”
Let us help you keep you posted on that, through our daily Ag-Alert service, as we prepare for the 2020 weather markets…
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