Mother Nature can be cruel. The promise of an El Niño return, which typically means a wetter US, should have heralded a bumper summer cropping season. Early forecasts of 388mmt corn with a record yield of 181 bushels/acre were an early crow of that optimism. The weather forecasts have been hinting at the developing wet phase but always within the next 10 days. Unfortunately, those forecasts kept getting pushed back.
As it stands today, 57% of the US corn belt is now classified as in drought, up a substantial 12% week on week. Forecasts are not promising any significant rain for the next week which will be critical as the temperatures will also start to ramp up.
Corn is the cornerstone for the US (and global) feed market. It is also an essential component of the US ethanol industry which consumes about 40% of the corn produced in the US. If the US feed market were to find corn supplies tight, the next available feed source is Soft Red Winter (SRW) wheat, the class that CBOT prices. That would put unprecedented demand on SRW which would see the price explode. Without a meaningful rain within the next 2 weeks, all those short speculative trades are going to look ugly.
Last night we saw corn up 20c/bushel (+4%) and wheat lift limit up (31c/bushel) as some of those spec trades look for the exit. Is this the start of a bull run? Or will a forecast materialise that dashes the hopes of price bulls? So much is riding on each and every rain forecast.
Northern Hemisphere is about to get busy with harvest. Europe has endured a dry finish which may knock some of the potential back a bit, but overall, the EU27 is looking at a big crop of 131mmt (+3% year on year). Russia too is forecast to produce 88mmt, down from the 103mmt produced last year, but still a historically large crop. This will mean they remain the price setter for wheat exports in the foreseeable future. Ukraine has also had a pretty good season, although a far cry from their pre-war levels, their Wheat harvest is estimated at 12-15mmt and corn 15-17mmt.
The week ahead….
The next two weeks’ weather in the US Midwest is going to determine price direction. Crop-saving rains can still happen, with July arguably the key yield-setting month. It is just that they are running out of time.
Click on graph to expand
Data sources: Reuters, USDA, Next Level Grain Marketing, Mecardo Mecardo
