May 14, 2014
Close May 14
4 week change
US 10 Year Notes
Crop prices were slightly weaker over the past 4 weeks, primarily reacting to the planting forecasts and progress. Conditions were generally too cold and wet early in the 4 week reference period, but improved in most areas as of late. What this year proves again is that North American farmers can plant very quickly once conditions are right.
As of Sunday, May 11, US farmers seeded 59 percent of their intended corn acres, which is 1 percent above normal for that date. 18 percent had emerged, with the normal at 25 percent. Meanwhile, 20 percent of the soybeans were planted, which is 1 percent less than normal.
The areas furthest behind were the Northern Plains (Minn., Dakotas, Wis.) and the Great Lakes region, including Ontario. The forecast locally is for an excellent planting window unfolding for the week of May 18, so hopefully that happens. We have not lost a lot of heat units to date.
On May 9, USDA updated old crop carryout (CO) and gave their first projections for the 2014 crops. The 2013 corn CO was lowered another 185 mln bu, to 1.146 bln, due to increased exports and ethanol use. This was friendly for price, but USDA surprised negatively on the 2014 CO, pegging it at 1.726 bln bu. Traders expected it would be `1.641 bln.
The2013 US soybean CO was lowered to 130 mln bu from 135 mln estimated last month. The 2014 CO was put at a whopping 330 mln bu, however, as they used the March 31 higher acres and a record yield of 45.2 bu/ac. Traders had expected 297 mln., so prices fell after the report.
Wheat fundamentals showed little net change, with the 2013 CO left unchanged at 583 mln bu., while the 2014 CO was guessed at 540 mln bu, versus traders’ expectations of 568 mln. Much of the hard red crop in the Southern Plains is in tough shape. In fact, only 30 percent of US winter wheat overall was rated either good or excellent as of May 9.
Longer term seasonal studies show that in about 2 out of every 3 years, prices drop through the growing season, and bottom at harvest time when supplies are the largest. This, I suppose, means we only have worse than normal growing conditions about 1 year in 3. With planting progress on a normal timeline so far, perhaps the bearish seasonal trend will assert itself this year.
What is supporting markets counter seasonally lately, I believe, is the added risk of the longer term climate change that is going on worldwide. It seems there are more extremes than ever, in terms of temperatures, rainfall and even hurricanes and tornadoes. El Nino is also again brewing in the Pacific.
Demand has been the wildcard that supported the better than expected 2013 markets and that demand is not expected to abate in 2014. The margin for error in North American production is still very small. This keeps sellers at bay. Meanwhile speculative and investment funds have cozied up more to the commodity asset class lately as well.
Volatility may very well increase with every new daily long range forecast. The Exchange has also raised daily price limits, which could add fuel to the fire. Settting price targets above the market could be a good risk management strategy for the 2014 crops.
Outside markets too were relatively quiet over the past month. The Ukraine situation is far from being resolved, but shouldn’t affect agriculture that much. Stock markets remain firm worldwide as it is the asset class in the strongest uptrend, attracting even more funds from speculators and investors. Interest rates seem destined to remain at historic lows for the foreseeable future. ♦
- Frank Backx, HDC Forest Location Manager