Analysis: Volatility in a weather market

by Ron Sterk
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Ron Sterk, markets editor
Ron Sterk, senior editor, markets

KANSAS CITY, Mo. – Steadily declining US Dept. of Agriculture weekly crop condition ratings continue to drive moves in US grain and oilseed futures, with crop conditions around the world also contributing to what has become a major weather market in 2017.

Attention last week turned more to US corn and soybean crops as ratings, while not nearly as dire as spring wheat, also declined. Corn was in the heart of its critical, yield-making pollination stage with 40 percent of the crop silking as of July 16, while soybeans were 52 percent blooming and were entering their key yield-determining pod setting stage at 16 percent, the USDA said.

The corn crop in the 18 major states was rated 64 percent good to excellent as of July 16, down one percentage point from a week earlier and from its initial rating May 28, but down from a season high of 68 percent on July 2 and well below 76 percent at the same time last year.

With the market jittery about weather, the modest decline as of July 16 (released after the close July 17) sent the new-crop December corn future up about 3 percent during the July 18 session. The December future started the run at $3.91 a bushel on May 31, followed spring wheat up to $4.14¾ by July 10, a gain of 6 percent, only to tumble 8 percent by July 13 due to bearish USDA supply-and-demand data, and then turn higher again last week on renewed weather concerns.

The soybean crop in the 18 major states was rated 61 percent good to excellent as of July 16, down from 62 percent a week earlier, 66 percent as the initial rating on June 11, 67 percent as the season high on June 18 and compared with 71 percent at the same time last year. The new-crop November soybean future was at $9.18¼ a bushel on May 31, rose 4 percent to $9.54¾ by June 30, surged to $10.43 on July 11 (up 14 percent from May 31), and was trading around $10 last week, up more than 80c, or 9 percent, from May 31.

The question is, what lies ahead for the remainder of the growing season. With spring wheat harvest under way and a much smaller crop to harvest than last year, it may be safe to say the bulk of the weather impact has run its course for spring wheat. But that is certainly not so for corn and soybeans, which are in their key reproductive phases.

Most meteorologists agree moisture levels are sufficient to get corn and soybean crops through the critical reproductive stages from now into mid-August, even though there are areas of dryness (and an area of excessive moisture in the eastern Corn Belt) that are of concern. The crops will not suffer the same fate as spring wheat, although yields, and thus production, likely will fall from initial expectations. At the same time, there are forecast bouts of rain and cooler weather, which would drive prices lower, as well as a forecast period of hot, dry weather in mid-August, which would push prices higher. In other words, typical volatility in a weather market.

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