A note to Mother Nature from farmers and market analysts: Uncle
Randy Martinson of Martinson Ag Risk Management discusses how the wild weather of recent weeks has impacted the markets and will continue to impact them into the future as acreage predictions become less clear.
Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.
The third week of April did not end as expected. The week started with strong gains, and it appeared that the grains were going to be off to the races once again. Early support came from the Crop Progress report which showed another week of slow planting progress. But the grains struggled the rest of the week due to profit taking and technical selling. The grains are all in an overbought market condition and in need of a correction, but as has been the case the past few months, every little retracement gets met with an aggressive amount of buying.
The need to hold intended acreage or buy acreage continues to be seen as spring wheat, corn, and canola all have consistently traded to and held near to recent contract highs.
Weather continues to be the main driver as the northern Plains saw another round of rain showers and another 6 to 12 inches of snow in some regions. Next week is expected to be dry but cold which will likely prevent fields from drying out. This will further delay planting progress in the northern Plains and likely result in lower spring wheat acreage and corn acreage than projected in March.
Slow planting progress in the Corn Belt also continues to add support as cool wet conditions keeps planters in the yard. Forecasts are calling for a warmer drier pattern to move into the Corn Belt, which might allow for some planters to start rolling next week.
- Recent grain prices drop is part of volatility to come in markets throughout the growing season
- From too wet, to too dry, weather takes control of market direction
- Planting progress strength met with eroding grain markets
- Market keeps taking hits after negative WASDE report
- Corn, soybean estimates show record yields, not quite record production
Warm and dry conditions in South America are adding support to corn as there are production concerns for the second corn crop. Reports have 75% of the second corn crop in some stage of drought.
Soybeans continue to see support from rumors of Chinese buying. The rumor that China was in and bought a massive amount of U.S. soybeans helped push the old crop months higher.
Indonesia, who controls 36% of the world’s palm oil exports, was a big influence on the soybean oil and canola markets the last week of April. To start, Indonesia announced that they were going to be placing a full ban on all palm oil exports starting April 28. But after coming under extreme pressure from other countries, Indonesia back off that and was only going to place a partial ban on palm oil exports. But by the middle of the week, Indonesia went back to their initial announcement and said they are going to be implementing a complete ban on palm oil exports. The ban on palm oil exports will start on April 28 and last indefinitely. The ban is an attempt to control domestic price inflation of the product.
Traders were concerned that this bullish news failed to support the U.S. soybean complex and are taking the stance that when bullish news fails to move the market, the top is in. Well, bean oil had been trading up to all-time contract highs and soybeans have rallied for little reason (other than stellar exports) the past few weeks. Could it be a buy the rumor, sell the fact type trading as the market was building up strength on the expectations of some sort of announcement and once the news was confirmed, profit taking set in?
Corn closed out the third week of April putting in its first weekly lower performance in four weeks, which had everyone calling for a top in the corn market as well. But it was just profit taking after corn traded to new contract highs for nine straight sessions. Markets cannot go up every day, and there has not been a decent sized correction in the grains in months as every little retracement gets met with heavy buying. This time the retracement might have a little more momentum as a little more negative news is starting to enter into the market. One, prices are high and getting to the point of demand destruction. Second, weather forecasts for some regions are starting to improve which should give way to some planting progress next week or possibly the following week in the Corn Belt.
The adverse weather continues to be verified by USDA’s weekly Crop Progress report. As of April 24, the U.S. winter wheat crop was rated 27% good/excellent, down 3% from the previous week and 3% below expectations. This is once again the lowest crop rating for wheat at this time of year. The big losers for the week were Kansas, which dropped 7% to 26% good/excellent and Oklahoma which dropped 5% to 16% good/excellent. What was a surprise was that spring wheat’s planting progress increased by 5% to 13% planted, versus 15% average. North Dakota was estimated to have planted 1% last week, with only 0.2 days suitable for field work. Minnesota still has 0% planted versus 8% average.
Corn’s planting progress is estimated at 7% versus 15% average. Soybean planting progress is estimated at 3% versus 5% average.
Stats Canada surprised the market with their acreage estimate as Canada is looking at planting more wheat and less canola. Canola acres are estimated at 20.9 million versus expectations of 22.11 million and versus 22.48 million last year. All wheat acres are estimated at 25 million versus expectations of 24.2 million and versus 23.5 million last year. Durum acres are estimated at 6.2 million versus expectations of 5.8 million and versus 5.5 million last year. Barley acres are estimated at 7.5 million versus expectations of 8 million and versus 8.3 million last year. High fertilizers costs were the reason given for the altered acreage.
As of May 2, corn’s new trading limit will be 50 cents, soybeans daily limit increased to $1.15, and Chicago and Kansas City wheat daily limit decreases to 70 cents.
Weather is also starting to grab headlines in South America as dry conditions are starting to become a little more concerning. As of Monday, 75% of the second corn crop was reported to be in some stage of drought. Look for this to result in a smaller than expected corn crop. Argentina rated their soybean crop at 18% good/excellent, unchanged from last week.
Cattle’s woes continued. Cattle were able to post gains to close out the third week of April but those gains quickly evaporated the last week of April. USDA’s April Cattle on Feed report was surprisingly bearish cattle. The on feed estimate was 2% above expectations and another record, placements were surprisingly 8% above expectations, and marketings were as expected. A strong cash trade helped cattle push higher the third week of April and those bids spilled over to the last week of April, but the bearish Cattle on Feed report combined with bearish economic concerns. Between the Fed hinting of increasing interest rates a half point in their next meeting and talk that interest rates need to increase to 6% to 7% to control inflation. To add pressure, some big banks are starting to push the talk that the U.S. will slip into major recession in 2023.
Losses were limited by continued concerns about tight supplies. And those supplies are only getting tighter. The higher number of cattle on feed is due to the fact that more heifers are entering the feedlot and not the breeding herd. To add to the tight supplies, the adverse weather conditions in the northern Plains since Easter has trimmed the 2022 calf crop with some regions reporting death losses as high as 15%. Cattle might continue to come under pressure in the short term, but long term cattle should perform better.
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