June 9, 2023
As we move into the middle of June, it’s obvious to those watching the markets what is in control. The weather is firmly in control – no matter what other market information hits the wire lately. On the days when the forecast is wetter, we obviously go lower and vice-versa. Given market dynamics, it’s apparent these markets are about to head in one of two distinct directions.
As we learned in the June WASDE, the old and new crop carry continue to grow. With old crop at 1.452 billion bushels and new crop at 2.257 bbu, the trend of tight stocks is possibly coming to an end. Yes, the USDA is still predicting a 181.5 bushel per acre yield at a rich 92 million acres. This is big production at 15.265 bbu if it were to happen.
If rain comes
So, one direction the market could go if the USDA’s big production forecast is correct is certainly lower. Going from a stocks/usage of 10.6% to 15%+ isn’t exactly bullish. Given a dry spring, it would appear the 92 million acres the USDA forecasted is certainly a possibility. It’s all about the weather at this point. If we get adequate precipitation after such a good spring for planting, there is certainly a possibility we could make a case for that yield to happen.
If we see this sort of production, what kind of a price drop might we see? There are plenty of thoughts on just how much we could dip, but given we’ve already seen a low of $4.90 ¾, I’d have a tough time believing a move well below this low wouldn’t be in the cards. In fact, a move down to $4.50 or below isn’t hard to fathom.
If drought persists
The other side to the story is of course a drier scenario. We are exiting a La Nina weather pattern and headed into an El Nino pattern, which was forecasted to be of a wetter setup. The transition has been slower than many assumed.
The current weather trend has been of benefit to many of the areas that have been dry over these last three years. However, areas like the I-states, particularly Illinois into the eastern-corn belt, have been excessively dry. Some parts of Northern Illinois had the driest May in the last 131 years.
Due to the dryness, crop conditions dropped by 5% nationally in just the second week of ratings. With just 64% of the crop rated good/excellent, many in the trade assume this next week will show even more deterioration. Interestingly, the weather models continue to diverge on thoughts about how the next week or two of weather might play out.
The GFS model has consistently been wetter in the 10-14 day window of forecasts, while the Euro model hasn’t ever bought into the wetter trend. While a full-on weather market typically doesn’t happen this early in the growing season, it’s here and it’s been stout.
So, what type of market action could be expected if we are looking at more of a 2012 weather pattern? While we’ve seen Dec23 trade above the 50-day moving average ($5.36) lately, it’s spent more time below it than above it. The 100-day is at $5.57, while the 200-day is up at $5.85. Given the changing dynamics in demand which results in carry-out stocks continuing higher, it’s going to take a full-on drought to trade above all of these levels.
Whether trying to figure out the market or the weather, it’s tough this summer. The best advice I can give as we navigate this volatile situation is to keep your flexibility. Given how quickly we could move in either direction, it would be wise to keep from putting too many eggs in one basket.
I hope you get the weather you’re looking for this summer-good luck with the rest of the growing season.
Feel free to reach out to me or anyone on the AgMarket team. We’d love to hear from you.
Reach Matt Bennett at 815-665-0462 or [email protected].
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading information and advice is based on information taken from 3rd party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
Read more about:Weather
About the Author(s)
You May Also Like
Current Conditions for
New York, NY
Enter a zip code to see the weather conditions for a different location.
Grains find end-of-week bumpJan 18, 2023
When will money stop chasing farmland?Sep 22, 2023
Biden administration addresses ag labor challengesSep 22, 2023
Harvest can mean opportunity in cattle marketsSep 22, 2023