Weather Adversity Suddenly Impactful

 

What’s Happened….

 

Corn, soybeans, and wheat prices have all rallied sharply in recent weeks. Weather uncertainty throughout the world has created significant buying interest, whether it be short-covering by fund managers, end users more aggressively seeking inventory, or speculators buying on anticipated higher prices. Trying to guess weather developments can be difficult.

 

From a marketing perspective, often it is generally good to assume normal weather until proven otherwise. Now, however, in just a few weeks, we’re experiencing weather that is not following normal patterns. Drier conditions for wheat in the Southwest (United States) and Black Sea region have surfaced. Continuous rains throughout the Midwest are slowing corn and soybean planting. Perhaps just as important, massive flooding in parts of southern Brazil this past week have stalled bean harvest, likely to cause a drawdown in expected production. Central and northern Brazil remain warmer and drier, which may be starting to affect the Safrinha (second crop) of corn. In Argentina, though not necessarily directly related to weather, spiroplasma, a disease which stunts growth and maturity, is dropping yield by an estimated 4 to 6 million metric tonnes.

 

Why is this Important….

 

The winter of 2024 was viewed as a time of adequate world inventories in all three row crops. However, the market has taken notice of recent weather and crop conditions, and how they could affect inventories.

 

Exportable wheat bushels from countries other than Russia remain near 15-year low levels. Therefore, disease or growing problems with the Black Sea region for corn and wheat could suggest tightening inventories worldwide. That appears to be the case, as a general dry pattern suggests downward-trending yields for the Russian wheat crop. Russia is the world’s largest producer and exporter of wheat and has kept the world market flooded with supplies. Recent dry conditions in the Southern Plains may reduce yield for U.S. wheat as crop ratings have dropped.

 

For corn, projected U.S. ending stocks are currently near 2.2 billion bushels, an adequate amount. However, key states are lacking strong planting progress this past week due to wet conditions, and the most recent 6 to 10-day forecast indicates all of the Midwest with above-normal precipitation. This could push many acres to late May for planting.

 

As for soybeans, there’s an expected risk of 150 to 200 million bushels in southern Brazil due to massive flooding this past week.

 

Fund money is more rapidly moving out of sold positions. The bottom line is that a change in view from adequate to tightening supplies is underway.

 

What can you do?

 

If planting and growing conditions are problematic for you, it may now be prudent to be patient in making new sales. You may want to shift tactics. If you are a strong forward contractor and continue to make sales, consider purchasing call options to cover sold bushels, creating a balance so that you have protected downside price risk and can also participate in price rallies. Or, in lieu of forward contracting, consider purchasing put options to establish a price floor. This leaves the top side wide open for unpriced production to participate in a rally. This approach may be especially helpful for farmers who are uncertain if they will get all their acres planted or questioning their yield potential and still want to establish a price floor. Some cash contracts have a double-up sales component, so make sure you understand what this means and how to manage the risk.

 

Just as you must shift on the fly when finding fields ready to plant, you may need to be adaptive and shift your marketing strategies as uncertainty arises, especially when weather-related issues arise. Take time and reevaluate your marketing approach for the year ahead as weather events unfold. Have conversations with your buyers and advisor with an approach that is best suited for you and your risk tolerance. Raising offers, using call options to cover sales, and buying puts in leu of forward selling all have a place. The key will be good communication, planning, and execution.

 

 

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.

 

 

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