Hopes for another weather rally in crop prices this summer declined as American farmers have seeded more corn and wheat than was expected.
These bigger acreages provide insurance that supply will be adequate even if it gets hot and dry in the U.S. Midwest this summer.
Because of its massive productive capacity, Midwest crop conditions dominate the futures market trade during the summer.
Four states accounted for 55 percent of U.S. corn production last year so they get special attention. Iowa was the biggest at 18 percent, followed by Illinois at 14 percent, Nebraska at 12 percent and Minnesota at 11 percent.
It has been dry in a good part of Iowa, Illinois and areas of Minnesota in the past month or so, but so far that has not hurt the weekly crop condition ratings for corn, which are better than last year at this time.
Heavy rain fell in Kansas, Missouri and southern Illinois on the July holiday weekend, but the storms tracked just south of Iowa and the state remained mostly dry.
The Chicago market was closed for July 4 when this column was written but I expect that once trade resumes the market won’t look back at the missed rain but will focus more on the five-day forecast that showed rain accumulations of 10 to 75 millimetres over almost all of the Midwest.
If those rains materialize, then corn could fall further. If they do not materialize or are spotty, then a new market environment could emerge, getting back to the drought worry, although likely not the type of extreme worry that fueled the strong rally in May and early June.
Some weather analysts continue to warn of the potential for a “flash drought” from much hotter than normal temperatures later in July and August.
However, a growing number think that rain will continue to fall through the summer, taking the edge off the destructive potential from the heat.
And even if there is a period of weather that stresses the Midwest crop, the larger than expected seeded corn area should moderate worries on the grain side of the market.
The oilseed side has a little better upside potential because of a tighter supply-demand ratio and the fact that soybeans develop later than corn, setting pods in August when, as some predict, it will be hotter than normal.
While the market spotlight is on the Midwest, the crop in Western Canada continues to develop under mostly favourable conditions
Environment Canada’s temperature forecast for July, issued June 30, shows most of Saskatchewan and Alberta experiencing normal summer temperatures while Manitoba could be warmer than normal during the month.
Hot weather could be a problem in southern Ontario and the U.S. Northeast in July.
Western Alberta is currently a bit dry but moisture is adequate to excessive in most of the rest of the Prairies.
The only other narrative developing in the crop market is, as we reported last week, widening wheat protein spreads.
U.S. winter wheat crop yields are exceeding expectations as the harvest progresses but the protein levels are lower than normal.
In Europe, yields are also expected to be strong, but rain on mature wheat crops is again causing concern about quality and protein.
And Russia’s government estimates a total grain harvest of a record 110 million tonnes, of which about 60 percent is wheat.
However, farmers are assessing damage from torrential rain June 30 that fell in the Rostov region, an important area for export wheat.