Wetter US outlook sends corn price surging

(AgriMoney) – The US weather outlook took a turn for the wetter over the weekend.

And that, really, was all that investors in Chicago needed to know early on Monday.

With the hopes of a faster pace of US spring sowings, that undermined grain prices for much of last week, going into reverse, corn futures corrected – upward – too.

“The outlook for later this week shows cool, wet weather plaguing the US Midwest once again, meaning spring crop development will slip even further behind schedule,” Luke Mathews at Commonwealth Bank of Australia said.

More positive take

Not, as ever, that there was complete agreement on the weather outlook for the US Midwest, the world’s most important corn growing region.

MDA, for instance, took a more positive spin, saying that while “showers will slow planting progress in western and central areas later this week, Monday and Tuesday will be mostly dry”.

Looking further ahead, “the six-to-10 day outlook is drier across northern and central crop areas and cooler in western areas versus Friday’s outlook”.

However, investors voted, through futures, for a more dismal view of prospects, sending new crop corn futures sharply higher in Chicago.

‘Considerably wetter’

David Tolleris at WxRisk.com outlined the Midwest weather outlook so: “The uncertainty in the weather models at the end of last week with regard to which areas were going to see rain and which ones were not is no longer an issue.

“The European and the GFS models are in very strong agreement that a prolonged major rain event is likely to affect most of the Midwest, as well as the eastern portions of the central Plains over the next several days.

“The coverage is around 75% over these areas and the rainfall amounts range from 1-4 inches, 25 -100mm.”

“All the forecast are now considerably wetter especially for the western Corn Belt.”

And it looks like rain could dog farmers next week too, with Mr Tolleris calling the rain system a “long duration event”.

Data later

This at a time when farmers are already well behind with plantings, with many brokers, including RJ O’Brien and US Commodities, late last week foreseeing a sowings progress due later from the US Department of Agriculture coming in at some 7%.

(Estimates are likely to be revised today to account for weekend conditions.)

That would be in line with the record low figure, for the time of year, in 1993.

And growers have limited time left before the May 10 deadline after which sowings are seen incurring a yield penalty.

Tour ahead

New crop December corn soared 2.6% to $5.37 ¾ a bushel as of 09:25 UK time (03:25 Chicago time), getting an extra technical boost from rising back over its 10-day and 20-day moving averages. It has closed above its 20-day line only once so far this month.

The performance of the new crop corn lot helped the old crop July contract gain 2.0% to $6.32 ¼ a bushel, climbing back over its 10-day and 20-day moving averages too, and gave a lift to wheat, which added 1.1% in Chicago for July delivery, to $7.00 ½ a bushel.

Wheat will come under extra scrutiny this week in part because of the Wheat Quality Council tour of Kansas, the top growing state, which will give a better idea of exactly how much the hard red winter wheat crop in the southern Plains has been damaged by late frosts.

Hard red winter wheat for July traded 1.1% higher at $7.59 a bushel in Kansas City.

But there is also the question surrounding spring wheat too, and how significantly the flooding caused by snow melt will delay sowings in the northern US and Canada.

Flooding risks

In fact, the US National Weather Service over the weekend estimated that the Red River would peak at Fargo, North Dakota at 37 feet on Wednesday, the bottom end of its forecast range, if still twice level which marks a flood.

Nonetheless, with temperatures looking like being below average all week in Canada, and for much of it in northern US too, the sowing weather is hardly ideal.

Minneapolis spring wheat for July rose 1.3% to $8.14 ¾ a bushel

Still, on the demand side, the closure of China for holidays for the first part of the week may undermine thoughts of Chinese import orders which has supported the market.

“If Chinese state run grain buyers are the key for the Chicago market finding support, they are going to be on holiday through Thursday,” Brian Henry at Benson Quinn Commodities noted.

Corn vs soybeans

For soybeans, the prospect of sowing delays effected prices in a negative way, as the oilseed has a slightly later planting window, meaning farmers who can’t get corn into the ground by mid-May could be tempted to switch to the oilseed instead.

And indeed, the new crop November lot eased 0.2% to $12.07 ¾ a bushel.

The prospect of a Chinese holiday was also a negative, with the country being the biggest soybean importer, a factor which rendered it sensitive to some poor economic data over the weekend.

Growth in earnings by Chinese industrial companies reached 464.9bn yuan ($75bn) last month, a rise of 5.3% in March 2012, bit well below the pace of growth of 17.2% in the first two months of 2013.

‘Might be depressed’

Still, at least soybeans had strong US cash markets to fall back on, which, as some brokers have noted, have restricted selling in futures, even if not promoting buying.

July soybeans added 0.3% to $13.85 ½ a bushel in Chicago.

But palm oil, another major Chinese import, was not so upbeat, falling 1.1% to 2,291 ringgit a tonne in Kuala Lumpur.

“Crude palm oil prices might be depressed by news that industrial profits from China declined sharply, an economic data that was released over the weekend,” Sim Han Qiang at Phillip Futures said.

‘News flow remains bearish’

Among soft commodities, New York raw sugar opened on the back foot, dropping 0.2% to 17.38 cents a pound for July delivery, and dicing with setting yet another two-year low.

“The news flow remains bearish,” said CBA’s Luke Mathews, noting that India’s earth sciences minister has forecast a normal monsoon this year, so lowering cane crop risk on that score. (India is the world’s second-ranked sugar producer.)

And India’s National Federation of Co-operative Sugar Factories has estimated domestic sugar inventories at a five-year high of 9.2m tonnes as of October 1, citing slow exports.

As an extra pressure on prices, Brazil’s cane harvest is ramping up, and the US Department of Agriculture joined commentators forecasting bumper output.