July 2, 2009

Crop weather, once the single-most bullish fundamental factor affecting US cash grains, has suddenly become one of the most bearish.

 

Weather is poised to become the primary market driver in coming weeks, following Tuesday's release of a price-negative US Department of Agriculture acreage report.

 

"The report data has shocked the trade," said Early Market News analyst Duane Lowry. "It will be very difficult for anyone to craft a bullish fundamental storyline to corn, without a weather problem."

 

The USDA said US farmers planted more corn and soy acres than previously expected and seeded more land to both row crops than in 2008.

 

Many Chicago Board of Trade corn futures finished with limit-losses of 30 cents per bushel Tuesday. Wheat suffered declines of about 12-22 cents, while new-crop soy contracts settled as much as 6 cents lower. As important as that crop report was, it may be quickly forgotten, as traders begin to focus on yield instead of acreage.

 

Very recently, weather underpinned all US grain markets. A chilly, wet spring kept farmers from seeding on schedule across the northern Plains, eastern Corn Belt and Mid-South region.

 

"In late May, however, drier conditions allowed farmers to make rapid progress," the USDA said in Tuesday's report.

 

In fact, US farmers have planted their largest soybean crop ever, and their second-largest corn crop - acreage that has flourished during the past month, amid what many analysts termed "near-perfect" growing weather in the grain belt.

 

"Last week, corn is in growth across much of Ohio," said Ohio State University extension corn specialist Peter Thomison. "Favourable conditions - abundant rainfall and warm temperatures - are fuelling this surge in corn growth."

 

In Iowa, the top corn-producing state, the crop grew 14 inches taller last week alone and is developing a full week faster than last year, when the state produced its third-largest harvest ever at 2.2 billion bushels.

 

Iowa State University agronomist Roger Elmore said some tasselling already is occurring in southwest Iowa. He estimates the majority of Iowa's corn will pass through its yield-sensitive pollination development phase in mid-July.

 

In Illinois, the nation's No. 2 corn-grower, University of Illinois extension specialist Emerson Nafziger said the earliest-planted corn is now six feet tall.

 

"We expect ... pollen shed could come as early as July 4," he said. "The last planting, in late May, is only about knee-high and so has at least a month to reach the tassel-emerged stage."

 

Corn tassels usually emerge first from the top of the plant, followed by silks from the cob, with subsequent pollen shed completing the pollination cycle. The USDA said Monday that just 4 percent of the nation's corn crop is currently silking, which is half the normal rate. Even so, corn crop condition ratings calculated by USDA have reached their loftiest level of the season.

 

Good-to-excellent crop scores have reached 72 percent for corn, compared to the five-year average of 67 percent. The US soy crop is now rated 68 percent good to excellent, compared to 63 percent for the average of the past five years.

 

Farm Progress market analyst Arlan Suderman estimates that yield potential for US corn improved by 1.65 bushels per acre last week alone.

 

"With crop ratings improving and no weather threats looming, the USDA acreage numbers suggest a big crop topping 12.3 billion bushels, assuming normal yields around 154 bushels per acre," he said. The USDA currently is calculating yield of 153.4 bushels.

Based on the good weather, MF Global market analyst Rich Feltes is pegging prospective corn yields at 156 bushels an acre, with total production approaching 12.5 billion bushels.

 

He also said that the 68 percent rating for soy is the third-highest on record for the date, "exceeding 2004's late-June rating, when steadily improving ratings through early August prompted a new record bean yield of 42.2 bushels per acre."

 

Feltes currently forecasts 2009 soy yields at 42.25 bushels an acre, and a total harvest of 3.324 billion bushels.

 

While mild, dry conditions in the Midwest are forecast to further benefit corn this week, Alaron market researcher Tim Hannagan cautions that soy yields still remain subject to fluctuations.

 

"The key pod-setting stage is a long way off," he said. "Weather near-term looks good for crop development but it is the period between July 15 and Aug. 20 that will determine the [soy] crop."