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Weather boosts rally price targets

Getty/iStockphoto hot day summer concept closeup thermometer with warm color tone
Slow planting pace and weather ratchet corn, soybean yield forecasts lower.

Slow planting and forecasts for warm, drier conditions over much of the Midwest this summer could trim both acreage and yields for corn and soybeans, boosting rally potential.

While threatened cuts to production from updated outlooks aren’t huge – 2% to 4% -- even that could be threatening in a world facing global food shortages. Smaller crops could ratchet pressure on markets tighter, adding 33 cents to potential corn gains and boosting soybean rally hopes by 57 cents.

To be sure, this forecast contains plenty of “ifs, ands and buts.” Still, it’s another indication that highs may not yet be in, ahead of the traditional Memorial Day start to the season.

The first challenge this spring is slow planting. May 15 corn progress in eight key states – a key metric in yield models used by USDA and analysts – came in at only 51%. That’s the third slowest in the past 20 years, only ahead of rates seen in 2013 and 2019. USDA anticipated some impact on production when it cut its forecast for weather-adjusted trend, or normal yields, by four bushels per acre to 177 bpa in its first monthly estimate of new crop production May 12.

Rally to offset late planting fails

Slow planting could have an even greater impact by reducing final acreage farmers are able to get into the ground. The $1.095 rally by December corn futures after surprisingly low March 31 planting intentions could be enough to soften acreage cuts a little. Even with big incentives to plant, acreage could fall by some 2.4 million.

Summer conditions could add to the squeeze. The National Weather Service released its updated forecast for June, July, and August, calling for above normal temperatures over almost the entire U.S. Below normal rainfall would extend through the West from Iowa and much of Missouri.

Most areas don’t appear in line for 2012-type drought. Average rainfall in key states would be .36 of an inch less than normal. Temperatures would average .57 of a degree warmer than normal.

The government only issued a monthly outlook for June, not July or August. Corn yields depend on July readings while the soybean yield model considers conditions in July and August. But non-official forecast models suggest the 90-day outlook is representative of what to expect both months.

The forecast translates into a corn yield of 175.4 bpa, so the combined yield and acreage cuts could knock more than 500 million bushels off the 14.46 billion USDA forecast May 12, taking projected Aug. 31, 2023 ending stocks below 1 billion bushels. Under that scenario, the top third of my futures selling range moved to $7.21 to $8.20. December closed last week at $7.32.

Soybean acres at risk

Impacts on soybeans could generate a big move on the board – if November futures can break out of their recent $13.94 to $15.55 trading range.

Slow planting isn’t a variable in soybean yield models, but it is correlated with final acreage compared to March intentions. If USDA reports 44% of the crop planted as of Sunday, it could cut 650,000 off the record 91 million March intentions. The 61.5-cent rally after the March 31 report doesn’t appear enough to affect that figure much.

USDA didn’t change its view of the normal soybean yield in its May report, leaving it at 51.5 bpa. The new summer weather forecast could drop that to 51.1, reducing the crop around 33 million bushels in all, about 2% of the government's original forecast. Still, with strong old crop exports likely taking another 25 million off Sept. 1 beginning stocks, projected 2022-2023 carryout could fall below 250 million bushels. That prospect upped the top third of my selling range to $17.38 to $18.73.

These rallies, if they happen at all, aren’t likely until growing season weather heats up in another month or so. Until then, plenty of uncertainties could affect the market’s dynamics. If selling on Wall Street continues, taking stocks into a 20% bear market, spill-over from “sell in May and go away” aversion could spill over into commodities as investors dump commodities fearing higher interest rates and inflation will trigger a recession. War in Ukraine is another wild card, along with hurricanes and lingering pandemic fears.

And remember, rallies are like waves on the beach – building to a crest, then crashing to shore. Average prices, not to mention lows, could be significantly lower than where the market is today.

Seasonal temperature outlook

Seasonal precipitation outlook

Knorr writes from Chicago, Ill. Email him at [email protected]

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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