We have seen big moves both up and down this week and it has been a wild ride. We have a weather market + less supply + more demand + inflation hedging all rolled into one. The big headlines this week have been due to weather. Brazil long term forecasts are turning very dry. Their second crop corn was planted late, corn is already at record price levels in Brazil and if they lose too much of the crop they are going to have to import corn. Commodity Weather Group (CWG) noted in their forecast that the safrinha corn belt in Brazil will see well below normal rains this month and next month since the rainy season will be over. This could easily be the driest the region has been in over 40 years. They are throwing ideas of write downs of 20% of the second crop corn which would be a loss of 600 million from the balance sheet. The hits just keep coming (finally in our favor for a change)! I think most of the positive price action this week in both corn and wheat has come from the weather in Brazil. USDA’s acreage estimates were low before we started writing down the crop down there. The market needs to encourage more acres!! Beans cannot afford to give any up.
The US weather is a mixed bag. The crop is going to be planted fast but as I have been writing about all year, there is no moisture in the subsoil profile in the corn belt. It will be crucial to get timely rains all season and the weather has been anything but typical. We desperately need to add acres and some of those will have to come from fringe areas in the Dakotas and Plains. The drought monitor is showing significant moisture deficits in many areas of the corn belt as well as the fringe areas we need to add. They are fringe areas for a reason. They need great conditions to grow big crops and we are starting off with anything but great conditions. NOAA three month outlook shows above average temps and no extra moisture for the western belt. We still have a long way to go and lots of things can change, but the threat is there and the market is taking note. We need to get more acres planted and the market is trying to make sure that happens.
Exports were dismal this week on all fronts but the pace has been blistering so far during the marketing year that this slowdown should not change the direction. The market did react with downward pressure yesterday after exports were released but the weather market took over later. Resurgence of AFS in China still needs to be watched.
What To Do – NEW CROP
Welcome to the 2021 weather market! It arrived a little earlier than expected but it should be exciting. $5 new crop corn on the board and $13 beans have been my target for a while now. We are above that on corn now and not quite there on beans. I think everyone needs to have some sales on at those levels! Up to 25%. Yes there is a lot of upside if we get weather write downs but those are not guaranteed. The weather can turn back wet as easily as it turned dry. I do not think we need to go crazy but I do want to get some sales on the books now that we are at very profitable levels!! Early basis levels are going to be the highest we have seen in a long time for both corn and beans.
What To Do – OLD CROP
Corn basis has not been as strong as I would have thought due to commercials dumping inventory due to the inverse. That means there will be even less corn available this summer so basis is going to be very interesting then. Bean basis has been getting stronger by the week. There are $7 cash bids for corn and $15 dollar beans in many markets. Anyone that has old crop left, you are not wrong to sell at these levels no matter where it goes from here. I would be selling a little at these levels but like new crop, there is upside if the weather continues to threaten.
Wheat does not have the tight balance sheet that the rest of the commodities are facing. Biden announced sanctions on Russia which weakened the ruble and normally that would cause significant weakness in the wheat market but right now there are going to be some sort of export controls in Russia so that has limited that threat. Wheat had traded down much closer to corn and knows that if too much wheat is fed, it will end up tight. The dry weather in the Plains is also a threat to some winter wheat and spring wheat planting.
Corn is going to be tight in June/July and basis will be strong. You can sell $6.50+ feed wheat in many places in the Southeast. The spread between corn and wheat has narrowed significantly and so there is not as much premium to go to the flour mill. The feed channel is so big it can take a big portion of our wheat without much backlog. We are setting up for very strong flour wheat basis this fall once much of the wheat gets gone. This year any option will be a good option. You can sell your wheat for feed and get a good flat price and be done with it. If you want to take a little more risk for a bigger reward and you cut good quality wheat, you can store it and you should be well paid for that too. It sure is a lot more fun when we are deciding between multiple options that all look good rather than having to chose the one that makes us lose the least…
Retail sales showed a record jump year over year from last year as pent up demand is starting to show up but exports were well below expectations. Strong stock market and economic growth is helping support cotton as well as continued dryness in West Texas. This will be their second year in a row of significant drought. There are starting to be concerns of increased abandonment. This coming after cotton dropped at the worst possible time to encourage acres in the first place. New crop cotton has a good chance of making a run at the Feb highs close to $0.90 cents but 0.85 cents will be a resistance level that may take some work to push through. Be patient on cotton.
May June July Weather Outlook