Farm Progress

Markets respond: From too much rain to not enough

Midwestern farmers — and commodities analysts — try to predict what too much rain and then not enough rain will mean for the corn and soybean crops.

Bob Burgdorfer, Senior Editor

June 16, 2017

5 Min Read
WEATHER WOES: What will too much rain and then not enough rain mean for Midwestern farmers looking for a bumper crop of corn and soybeans?

Too much rain … then not enough. That was the story for the corn and soybean markets in early June. A wet, early spring that delayed planting in much of the Midwest evolved into a hot, dry June that had farmers wanting rain to fix ailing crops.

Young corn plants struggled as a lack of rain was joined by temperatures topping 90 degrees F at times.

The change in weather was reflected in the conditions ratings, with corn at 67% good to excellent then compared with 75% the year before.

Social media and online services carried pictures of Midwest cornfields with cracks in the topsoil.

“Problem is hot and dry has set in. Cold and wet spring has turned into hot and dry summer. Never a good scenario,” a farmer in northwest Indiana wrote in Farm Futures’ “Feedback from the Field.”

Similar comments came in from Iowa and Nebraska.

Soybeans in mid-June were 66% good to excellent versus 74% a year ago. Iowa’s crop came in at 73%, Illinois at 66% and Indiana at 51%.

While condition ratings can move markets and raise concerns, a University of Illinois study found early crop ratings are a poor indicator of final yields. 

“While correlations between condition ratings and final yields are lower in the early part of the growing season, and especially poor for the first ratings of the season, ratings as early as mid-June provide some useful information for projecting yields,” according to the study, which based its finding on crops from 1986 to 2016.

The study concluded that for ratings to “provide a relatively accurate projection of yields,” one needs to wait until mid-July for corn and mid-August for soybeans.

Big soybean crop in Brazil
U.S. crop numbers in USDA’s June crop report were about as expected and prompted few reactions from the market. However, the big forecast for Brazil’s just-completed soybean harvest of 4.19 billion bushels received some attention. That beat a number of trade forecasts, was up 2% from its previous estimates and was up 18% from the year-ago crop.

USDA attributed the increase to bigger yields, particularly in Brazil’s Rio Grande do Sul.

“The increase in Brazilian soybean production was even more than I expected, and my number was on the higher end of trade guesses,” says Bryce Knorr, Farm Futures senior grain analyst. “That supply will hang over the market this fall, which is why new-crop corn and soybean export sales are off to a very slow start.”

USDA put Argentina’s soybean production at 2.12 billion bushels versus the previous forecast of 2.1 billion and last year’s 2.09 billion. Going forward, new agriculture policies in Argentina are expected to have farmers plant crops other than soybeans. USDA forecasts Argentina’s 2018 harvest at 2.09 billion bushels.

Spring wheat’s troubles trigger price rally
Spring wheat dominated market headlines in early June, a time when attention is typically focused on the young corn and soybean crops. The crop’s poor start due to dry conditions in the northern Plains pushed those futures prices to their highest since January 2015.

By June 13, the crop was rated 45% good to excellent, well down from 79% a year ago. The lowest ratings were in the biggest production areas: Montana at 23%, North Dakota at 43% and South Dakota at 13%.

North Dakota, the biggest producer, and South Dakota both blame inadequate rain and low soil moisture for the crop’s poor start. Wind and temperatures exceeding 90 degrees F added to the problems.

At press time, USDA had not officially published a spring wheat estimate for this year. But it did forecast a total wheat crop of 1.824 billion bushels and a winter wheat crop of 1.25 billion bushels, leaving 574 million bushels for spring wheat and durum. After two weeks of lower condition ratings, analysts already were beginning to think those numbers may be too high.   

“Farm Futures’ models put the spring wheat crop at between 42.5 and 43.4 bushels per acre nationwide. That suggests the all-wheat crop could be 20 million to 30 million bushels less than USDA forecasts,” says Knorr.

A year ago, spring wheat averaged about 47.2 bushels per acre, and durum, 44 bushels.

In June, spring wheat and durum were still growing, so there was time for improvement, providing rain arrived. But traders then were not waiting, and images of a small crop had them bid spring wheat futures to a two-and-a-half-year high, past $6.40 per bushel.

Slow start to Kansas wheat harvest
The wheat story was not much better in Kansas, where the harvest got off to a slow start and yields ranged from good to bad to zero.

Fields that had rain, were missed by the late April snowstorm, or escaped disease yielded 40 to 45 bushels per acre. But for every field like that, there was one that yielded 20 to 25 bushels. There also were fields so damaged by disease or weather that farmers plowed them up and planted sorghum.

“One of the fields looked pretty good, and the field next to it didn’t look good at all,” says Shorty Kulhanek, a custom harvester who traveled near Wakeeney in western Kansas.

While the late April snowstorm flattened a number of Kansas wheat fields, there was hope then that the plants were young enough to bounce back. Some did, and others did not, according to custom harvesters. In addition, wheat streak mosaic, a fungus disease, infested a number of fields.

The few fields Kulhanek had cut yielded about 25 bushels per acre. However, he expected other fields nearby to produce 40 to 45 bushels.

Many of the fields in western Kansas were slow to ripen, which delayed the custom crews that move from Texas to the Canadian border every summer. That’s in contrast to the Oklahoma and Texas crops that matured ahead of the five-year averages  and allowed quick harvests.

On June 14, near Colby on Interstate 70 in western Kansas, “the wheat was grass green because of the cool weather and rain,” says Kulhanek.

USDA in June forecast an average Kansas wheat yield of 44 bushels, which would be down from last year’s 57 bushels. Statewide production was forecast at 303.6 million bushels on 6.9 million acres, compared with 467.4 million bushels on 8.2 million acres in 2016.

Burgdorfer is senior editor for Farm Futures.

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