Corn futures lifting slightly

AS GOMER Pyle would say, “Surprise, surprise, surprise, looks like we have ourselves a weather market here, Sarge!”

The relatively benign markets of the early northern hemisphere spring months have given way to increased volatility as a flurry of news reports cast doubt over cereal production through parts of the United States and Canada.

Last week, I highlighted the development of drought conditions in parts of the Northern Great Plains and up into the Canadian Prairies. These conditions have worsened week-on-week, with high temperatures adding to the moisture deficit situation and expanding the drought area into the north-western corner of the Midwest.

As a consequence, the latest US spring wheat crop rating tumbled to its lowest level in more than 10 years. Some rains are forecast in the next week, but they are scattered and not nearly enough to completely alleviate concerns.

Less than two months ago, we were hearing and talking, reading and writing about floods in the state of Kansas, and the impact that would likely have on the Hard Red Winter wheat production this year. There was a lot of doom and gloom.

Well, like in Australia last year, the worst-hit areas have certainly suffered production losses, but reports to date suggest the fringe areas have benefited from the rain and some pundits are predicting that yields from those areas may surprise to the upside.

Of course, the freshly planted US corn and soybean crops love the hot weather, but not in the absence of good soil moisture.

The forecast for continued hot and dry conditions across the US Corn Belt this week and next will not only be unfavourable to winter and spring crop production, it will also put pressure on the summer crops as they struggle to emerge and establish a strong and healthy root system to protect them through the hot summer months.

North of the International Boundary, the weather conditions have been a lucky dip as well. The southern parts of Saskatchewan are very dry, but the spring crop planting in the northern parts have been constantly interrupted by rain and the window is closing fast.

However, drier periods in the past few weeks have allowed planting to resume. The seeding percentage now exceeds 90%, with confidence growing that planting will be close to completion by mid-month.

Having said all this, it was not a surprise to see one-way traffic for the major futures bourses last week, all finishing up compared with the previous Friday close.

The strength in the Minneapolis Hard Red Spring Wheat futures of the prior week flowed through to the Chicago Soft Red Winter trade last week. The funds (speculators) pulled both the triggers and wound in their short positions in wheat and corn by approximately 14,000 and 65,000 contracts respectively week-on-week.

The weather news certainly held sway over the monthly United States Department of Agriculture supply and demand report, which basically went off last Friday without so much as a whimper.

The news was slightly bearish wheat and slightly bullish corn. The market reaction was relatively subdued, with corn futures posting a small gain and US and European wheat futures retreating ever so slightly following the release of the report.

Unfortunately we haven’t escaped the weather issues here in Australia. Most of the winter crop is now in the ground, but the moisture profile under those crops is quite variable.

In some regions a large portion of the crop has been sown dry and the areas that remain unsown will remain that in the absence of significant rain. Virtually all the crop area now needs rain to germinate and/or properly establish as we move into the colder, less vigorous winter phase of the growing season.

The production concerns have definitely been reflected in both old and new crop domestic values in the past three weeks.

While the dry bias in the long-range forecasts continues to diminish, the absence of significant rainfall in the near term will certainly support domestic grain markets. Some will view this as an old crop selling opportunity and for others it will reinforce their resolve to hold.