If you still think the U.S. Midwest is suffering from drought, you are wrong.
The heartland of America’s corn and soybean production now has lots of moisture to get the crop started and the regularity of weather systems delivering moisture to the region gives hope that the factors that led to last year’s drought are now gone.
It is cold in the Midwest, as it is here on the Canadian Prairies, and there are concerns about late seeding. However, long range forecasts indicate May could be warmer and a lot of acres can be seeded rapidly.
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Late seeding can limit corn yield, but worries about limited moisture are washing way.
The Mississippi River is one indication of the changing situation. In February there were concerns that low water levels would limit barges carrying grain south to the Gulf of Mexico. Now, there is flooding in parts of the river’s basin.
Seeing this, big trading funds are backing out of crop commodity markets. They are now net short in corn and wheat, meaning they are betting on lower prices ahead.
The warnings by analysts back in February of significantly lower prices in 2013-14 seem more possible now. It provides a warning to Canada’s wheat, canola and barley farmers because corn and soybean prices are the foundation of the entire grain complex market.
You might not see the risk if you are looking only at cash prices. The cash market is supported by the need to ration tight old crop supplies, but at some point I fear there will be sharp shift of market psychology to a more relaxed attitude and an assumption of abundance rather than shortage.
The outlook for global crop production is pretty good, other than a cold spring in most of the Northern Hemisphere, which is slowing winter crop maturity and delaying spring seeding.
Russia is expected to bounce back from last year’s drought, and Europe, aside from rain-saturated Britain, is looking at average crops. It is dry in southern China, but most grain is produced in the north where conditions are generally better.
India is expected to have an average monsoon, which is so critical to its crop production.
There are only two significant crop concerns.
The U.S. hard red winter wheat crop, which came out of dormancy struggling because of the fall and winter drought, has since been hit with repeated freezing temperatures. It is becoming clearer with each passing day that the western part of the hard red zone suffered very severe damage.
That will provide support to wheat prices, but the impact is lessened by the fact that global supplies of wheat are ample. As well, soft red winter wheat, which is grown mostly in the Midwest, is in good shape.
The other significant potential problem is in the Southern Hemisphere, where rain has missed eastern Australia for months, particularly New South Wales and Victoria. There were showers in some of the dry area on April 22, but the forecast is for average to below average rainfall over the next three months.
Seeding of winter crops has just begun in Australia.
In addition to potentially limiting wheat yields, the dry weather could also reduce canola acreage. Analysts said last week that New South Wales, the second biggest canola producer in the country, might reduce canola seeding about one-third from last year.
