Is This “Bullish” Factor the Only Hope Left for 2018 Grain Prices?

At a time that trade wars and crop potential weighs on the likes of soybean and corn prices, some could argue that just one bullish factor left to save grain prices in 2018.

Just one variable that can secure last-gasp profits for producers in the months ahead.

Usually, it’s a boring factor.

Some people overlook it because it doesn’t generate hyperbolic headlines beyond the local papers or coffee shop talk.

And it’s one that is very difficult for analysts to quantify on a daily basis.

But this year, two “learned” experts in this factor have called 2018 the most challenging year of their careers to forecast this variable… and – of course – the impact on crops in 2018.

If you don’t stay on top of the volatility of this factor in the weeks ahead, it could cost you precious margin on every bushel.

It’s a Bird… It’s a Plane… No… It’s the Sun?

If you’re like me, you’ve known your local meteorologists for years. Morning weather reports and evening forecasts are critical on the farm.

But for a lot of people, the weather is dull.

This reality is why meteorologists sometimes have fitting “weather names” and are part of a broadcast’s comic relief. (See Dallas Raines as a perfect example of both.)[1]

They’re the first people we curse when the weather deviates from expectations…

And the last person we thank when the forecast actually materializes as predicted.

But in the world of weather forecasting, no one wants to get anything wrong.

Precision is more important than accuracy.

It was striking this week when Kirk Hinz and Michael Clarke from talked about how difficult it has been to forecast this season. In a conversation with Agritalk’s After the Bell, Hinz sounded resigned to the difficulties of predicting this year’s weather on a scale of 1 to 10. [2]

“I would say beyond seven days, it’s up there, eight and a half to a nine,” he said. “I mean, there’s just a lot of stuff going on in the background of the atmosphere. And there’s a lot of different factors going on and a lot of clashing data.”

Clarke said it was the hardest season that he has ever forecasted.

“I’ve never been through a more challenging time,” he told Flory. “We’ve got hints of a La Niña background and an El Niño background. You know, you could argue the precipitation pattern has some kind of El Niño background tied to it where the temperatures are reflecting more of a La Niña. There are so many things going on, you’ve got typhoons in the West Pacific Ocean. It is very, very difficult right now. It’s very stressful.”

Naturally, El Niño is starting to generate chatter. The U.S. government has set the probability of a fall weather event to 65%, while winter expectations fall at 70%.

The question we want to know – and answer – is how can the volatility in weather provide a boost to grain prices in the months ahead.

Are Your Eyes Playing Tricks on You?

Recent reports have shown an uptick in abnormal dryness and drought spreading across the Midwest. Missouri’s smaller corn and soybean crop have been the sore spots on the weekly crop progress reports. Last week’s Drought Monitor shows that dryness has spread to key soybean and corn growing regions in the southwestern areas of the Corn Belt.

Drought Monitor

This map will be critical for area farmers and grain buyers in the weeks ahead.

For now, most of Iowa and Illinois have largely avoided the conditions hammering their neighbor. Illinois soybeans are rated 73% G/E, while its corn is graded 80% G/E. Comparably, Iowa’s soybeans are rated 75% G/E, while its corn is rated 78% G/E. All of those numbers are at least 5 percentage points ahead of their five-year averages. Meanwhile, Indiana looks like it’s going to avoid any severe conditions in the months ahead given the current state of the weather.

This all comes after 60 days of above-average temperatures across that region.

60 Day Past Outlook

That said, from the ground, soil moisture is falling, but not enough to raise concerns about pollination. Karen Braun at Reuters said this week that with higher heat in the past, farmers have relied on “anomalously high rainfall during July-August in the Midwest for huge corn yields.” [3]

She is explicitly pointing to 1987 and 2016 in her comments. She hinted on Twitter that with many dry spots still across the country, the places with the most precipitation over the last month are the ones that are likely to get hit.

The next four weeks will be critical in the coming weeks to determining crop stress, yields, and prices.

As we continue to eye these conditions on the ground, we have to explore all of the possibilities for American crops in the weeks ahead. As we explained to GrainCents corn subscribers on July 1, there was a bullish case to be made by USDA meteorologist Brad Rippy.

Rippy had proposed that we may end up with a similar crop to what we saw in 1995 and 2011.

“What started as a promising crop was hit hard by hot temperatures,” we said.  However, it would take several rounds of hot weather to bring the bulls back to the markets.

And hot temperatures don’t look like they are in the cards for the next two weeks.

WorldAgWeather.COM projects cooler temperatures in the next two weeks. 15 Day Forecast

However, dryness could extend across the Midwest given the normal precipitation forecasted across the region.

15 Day Precipitation Forecast

We would need to see a change in the weather in the final week of July into August. The dry spells would need to be like the ones we’ve seen in recent weeks, then those weather rallies will present us with selling opportunities.

String a series of them together, and the managed money crowd will start piling back in and adding support to grain prices on the board in Chicago. Naturally, this is a best-case scenario for a bullish run on grain prices. But let’s take a look at recent events to get a sense of where corn prices and soybean prices have moved during the second half of the year since 2013.

Where Corn Prices Go from Here

This week, in GrainCents, we’re going to discuss the range of expectations for prices in the weeks ahead – depending on whether weather forecasts come to fruition.

This morning, we began our discussions around the office. The consensus was that we might see prices in Chicago drift lower by another 5% due to seasonality pressures.

But, we have to look back at the last five years for clues on where a rebound might emerge.

Corn prices in Chicago have trended downward in August over the last five years before finding their legs in September and October. However, given the sell-off we’ve seen over the past 6 weeks, it’s possible that the lows might’ve already been seen. This would especially be true if you see a bit of a weather rally over the next few weeks, before trending lower again ahead of crop tour season.

Corn Prices 5-Year Trend

Soybeans, however, have offered a few more swings and profit plays, notably in 2014, 2015, and 2016.

Soybean Prices 5-Year Trend

This year though, seasonality isn’t necessarily the name of the game. Given the increased political pressures and the intense selling, 2018 is going to be much different. The downward shift in prices came much faster than many people anticipated. However, there is always a chance that we could see some opportunities emerge in the near future.

Should El Nino pick up and increase concerns about the crop in South America, we could find additional support for soybean and corn prices. That’s especially true as harvest ends and speculation begins on the state of the Southern Hemisphere’s growing season and U.S. planting for 2019.

What Comes Next?

Looking ahead, it’s important to remember three things.

 1. Weather isn’t the most exciting topic in a time of a trade war, but it would be a driving factor in bringing prices back profitable levels for many farmers for remaining 2017/18 crop.

 2. Weather creates volatility, and volatility creates opportunity. The more variance that we see in forecasts and uncertainty, the more the markets will see wilder swings. We will look to ride speculative waves from time to time to get the best price possible.

 3. Many other factors could limit the upside of weather events like the trade war. But there are others that can complement weather speculation and help compound both upside and downside swings. These are the factors that we cover on a daily basis in GrainCents.

You need to stay on top of the risk factors as we move deeper into the hotter months.

You can sign up for a free three-week trial to GrainCents.

You’ll get your first weekly digest on Sunday morning and access to our sales positions for both old crop and new crop.

Also, you’ll get additional coverage this week on where we foresee prices moving based on current and extreme weather forecasts.

Again, you can sign up for free, right here.  

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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