A crop is killed three times every growing season, or so goes the old traders’ adage.
Weather scares and rumored production problems traditionally boost North American grain futures prices a few times each year as traders wrestle to pin down supply numbers.
But this summer, weather scares may be more short-lived than usual.
An updated forecast for El Nino suggests the weather god is not only playing havoc with sea surface temperatures off the coast of Peru, but may also affect the duration of market rallies prompted by weather scares.
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The United States National Oceanic and Atmospheric Administration issued its latest look at the progress of El Nino last week.
Earlier in the year, its meteorologists expected the weather pattern to fade away in early summer. The onset of La Nina usually correlates with below-trend yields for the U.S. Midwest, analysts say.
But now, the meteorologists think El Nino will stick around until later in the summer.
El Nino summers generally give better odds to crop yields – and worse odds for prices.
“So basically, what you see now is what you’re going to get for the next couple of months,” said Greg Kostal, analyst with Pro Farmer Canada.
“The hotter, drier patterns that are associated with La Nina are likely to evolve more in the August time frame,” he said.
Markets have been in a bearish mood as of late, which can only be shaken with a weather scare, said Kostal.
“But if you believe that forecast, there is not going to be any sustainable weather scare rally that one can hang their hat on,” said Kostal.
“It’ll just kind of be a gradual, trickle-lower price environment.”
The market will first be sensitive to any signs of delays in planting, said Kostal.
Moisture conditions look good in the major growing areas of the United States, said Rob Dzisiak of Linnco Futures Group.
He noted there could be some delays because of too much moisture, leading to short rallies.
Only get worse
Dzisiak recommends that farmers sell old and new crop into any rallies during May, since predicted good weather could lead to markets breaking down in early July.
“Any kind of weather scare in the next month or so may be a good selling opportunity because even though prices are weak, if we don’t get any weather scares in the U.S., we could see lower prices as well,” he said.
Kostal suggests farmers use weather rallies to price the portion of their oilseeds they want to sell off the combine this fall.
Farmers should set “reasonable” targets such as $7.50 per bushel for flax and $8.25 to $8.50 per bu. for canola “and hope that’s going to be your worst price” for the crop year, he said.
Because cereals have been much less profitable, Kostal suggests farmers bin them and wait for an evolving better price cycle.
