Traders optimistic | Condition of corn and soybean crops ahead of 10 year averages, says analyst
All eyes are on the U.S. corn belt as it approaches the crucial tasselling and silking stage.
How the crop fares through that critical yield-setting period will answer lingering market concerns about low stocks that drove prices sky-high last summer when the U.S. Midwest drought hit.
Corn is still the foundation of the grain market and its trend affects the price of wheat, barley and oats.
“The weather forecasts are looking pretty good so far. The trade’s not too worried about it,” said analyst Arlan Suderman of Water Street Solutions.
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Unlike most crops that have long periods of yield-setting and can recover from stresses, corn is profoundly affected by conditions during the few days in which it sends out the tassels through which it is pollinated. If conditions are hot and dry then, as they were last summer during pollination, the crop’s potential is permanently reduced.
It is similar to canola’s flowering period, when potential can be ruined if heat scorches petals and aborts flowering.
Crops such as soybeans and wheat are far more resilient, better able to bounce back from problems.
The U.S. corn crop’s development is late, suffering through a cool spring after having been seeded late. But most crop condition reports describe it as in good shape and doing remarkably well.
As of July 7, the United States Department of Agriculture crop progress report said 68 percent of the corn crop was in good to excellent shape, up one percentage point from the week before.
Last year during the drought, the percentage was only 40 percent.
“We’re really above the 10 year average for both corn and soybeans,” said Suderman.
“That’s a bit baffling for farmers,” considering the problems in the spring.
Drew Lerner of World Weather Inc. also thinks the crop is generally in good shape.
“The current situation across the area is really quite favourable,” said Lerner.
The crop is late, even if in good condition. Usually tasselling and silking would be occurring now in most of the corn belt, but this year it is only occurring in the southern edge.
Instead of a long period with one region after another sequentially entering the reproductive stage, most areas are synchronized this year.
“The bulk of the crop will be tasselling and silking in a concentrated time period with better than 50 percent in the final week of July,” said Suderman.
Because of the generally good conditions, traders and users have few worries about corn supplies come harvest.
That means there’s little risk premium left in corn prices. Early this week December corn futures were trading below $5 per bushel, a level not seen since the fall of 2010.
So if the weather suddenly turned stressful, traders would have to adjust their positions quickly opening the possibility of a sharp rally.
“I don’t think there is much risk premium built in the market. If we got a switch in the forecast, we could expect quite a bit of short-covering and maybe new longs coming in,” said Suderman.
There was a bit of taste of that in the market July 8 when prices were supported by weather models that suggested a drier, hotter trend in the Midwest in mid July.
But Lerner also expects no problems. His forecast calls for good conditions across the corn belt, with the exception of the south and southwestern region of Missouri, Kansas, Nebraska and southwestern Iowa.
And if things turn bad, it is unlikely that corn could be damaged anywhere near as severely as it was last summer.
If it turns hot and dry it would only slightly affect earlier-seeded corn because the soil moisture situation and crop condition right now are good.
Later seed crop would be hurt more, but still not as bad as in last year’s severe drought.
Altogether, Lerner expects a near-average crop.
“I think there’s still potential that we’ll be below trend yield, but not nearly off the mark as much as last year,” said Lerner.
“It’ll likely be a really decent year.”
