Wild weather fails to alter bearish crop supply outlook

The year began on several sour notes.

  • A report showed China’s economy appears to be contracting, sparking a seven percent stock market plunge that spread to other markets around the world.
  • Tensions rose between Shiite Iran and Sunni Saudi Arabia, raising the possibility of even more conflict in the already violence prone region.

This made investors nervous and crop and livestock markets could not avoid the negativity.

However, I expect the impact will be temporary.

Lasting change in crop markets will depend on whether supply surpluses can be reduced, and that depends mostly on the weather. I see nothing yet that would lead to sharply reduced production.

After watching the coverage of rain and flooding in the U.S. Midwest over the holidays, I naturally wondered about the longer-term implications for spring seeding in the United States.

Large parts of the Midwest had 300 percent of normal rainfall in December. One hundred to 150 millimetres of moisture were common, and in southern areas 250 mm or more were recorded.

The weather caused flooding and shipping problems on the Mississippi River.

If fields are saturated come spring, then seeding would be delayed and that would support grain prices.

However, the longer-term forecasts don’t suggest that the excessively wet weather will continue.

The January forecast from the U.S. Weather Service’s National Oceanic and Atmospheric Administration shows a trend toward dry conditions around the Great Lakes.

There is an equal chance for dry, normal or wet weather in most of the Midwest.

Only in the deep south is there above normal chance for wet weather.

It is a similar picture in the January to March forecast.

As for temperatures, the three month forecast is for warmer than normal weather through much of the Midwest, which means there is a good chance fields could dry out in time for seeding.

The long-term implication of the December rain might be favour-able because soil moisture reserves could be good.

Weather is also closely watched in South America.

In early December, concern increased about dry weather in Brazil’s Mato Grosso state, a key producer of soybeans. The state’s agricultural institute warned that nearly half the soy crop was in bad or terrible condition.

However, the region has since received rain, and more moisture is in the forecast, so the overall Brazilian crop might yet reach earlier forecasts for a record 100 million tonnes or more.

Argentina should also have strong crops of soybeans and corn this year.

As well, the new government has eliminated export taxes on wheat and corn and reduced them on soybeans, which will lead to a greater incentive for Argentine farmers to push crops onto the export market.

Continuing our review of current moisture situations, it is clear that much of the Canadian Prairies and northern U.S. Plains have little snow. Manitoba is the exception.

El Nino still dominates the weather picture, and the dry, warmer than normal winter is expected to continue across the Prairies. This could lead to early seeding here but also the worry that newly seeded crops could suffer from lack of moisture.

There is lots of talk about the potential for a rapid shift from El Nino to La Nina conditions, but even if true, that won’t happen for months.

So for the foreseeable future leading up to seeding time, I expect surplus crop supplies will continue to be the dominating market issue.

About the author

Markets at a glance

explore

Stories from our other publications