Trade is debating whether this year will turn out to be one of those rare years with no significant weather scare with prices plunging to significant August lows like in 2000, or if this year will be one where the rains stop and prices jump to all-time highs like in 2012. The former is looking more like the case with favorable topsoil moisture reported all across the corn belt. In fact, topsoil moisture may be too favorable, preventing corn planting in many areas. In western Nebraska and southwest South Dakota, corn that is planted has been in the ground for 3 weeks without emerging or it has emerged and has been subject to below freezing temperatures. Trade is anxious that corn acres will be switched out for other crops such as soybeans or sunflowers if planting cannot continue. This is certainly the case in western Nebraska with the forecast looking wet into the first week of June and there is talk of corn seed exchanges at the local agronomists.
Most of the rally this week is attributed to fund short covering with some fundamental aid coming from concerns that wet weather in Texas and Oklahoma will cause some yield and quality loss, and anxiety over hot, dry weather in southern Russia having negative impacts on their wheat crop. Snow and cold weather in the panhandle of Nebraska and southwest South Dakota have stressed the winter wheat crop. Two occurrences of snowfall between 6 and 8 inches laying on the wheat has raised concern of broken stems and temperatures below freezing have had varying impacts, depending on which stage of growth the plants are in.
The following is the more detailed Nebraska Wheat Report.
Seasonally, there is a strong tendency for wheat to rally slightly in the spring but then decline from then into mid-July harvest season. The recent rally has priced US wheat above the rest of the world and economic theory states that prices will have to come down if we want to sell any wheat.
I want to stress that although there has been a good rally in both corn and wheat this week, it does not mean that this signals a long-term bullish trend. The overall long-term outlook is still bearish for both wheat and corn. The majority portion of this week’s rally is the result of funds covering record short positions in both Chicago CBOT corn and Kansas City wheat futures. The dollar has surged this week and there is a direct negative correlation between the movement of the dollar and the movement of grain prices. When the dollar goes up, the prices go down.
Historically, the markets follow a neutral sideways pattern until the May USDA supply and demand report is released. After this report, the market can loosen up and begin to move. Volatility begins to enter the market creating periodic rallies in prices. These rallies would be good opportunities for producers to price old crop bushels that they are still in possession of if they want to move them before this year’s harvest.
Some crop insurance information.