The heat is on! How the markets will react may be evident by next week
Heat moves in and likely will linger in some places, the Fed raises interest rates three quarters of a percent and the markets get a three day weekend. Don Wick of the Red River Farm Network and Randy Martinson of Martinson Ag Risk Management discuss how the markets are handling all of that and what may be on the horizon in the June 30 acreage report on this week's Agweek Market Wrap, sponsored by Gateway Building Systems.
It's going to be hot this weekend in the northern Plains, but it's been hot and will stay hot far longer in much of the Corn Belt. That's going to have an impact on agriculture, from crop conditions to livestock mortality.
How much of an impact may begin to be evident when markets open on Monday night following the Juneteenth holiday, Randy Martinson of Martinson Ag Risk Management told Don Wick of Red River Farm Network on this week's Agweek Market Wrap.
The northern Plains hasn't, so far, had much of any heat in the spring or burgeoning summer. But near triple digit heat is expected for this weekend. Martinson said that might not be a bad thing up in this region and might help move along some crops that have been off to a slow start.
However, that same heat is expected to stick around in the Corn Belt for weeks. Some of the crops, especially those that were planted later than usual, may not be canopied enough to protect themselves from those conditions and could start to go backward, Martinson said.
Cattle also are feeling the impact, with reports of thousands of head dying in Kansas and surrounding states. Martinson said it's "likely just the beginning of death losses," with the heat expected to linger.
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And the mercury isn't the only thing rising: The Federal Reserve this week raised interest rates three quarters of a percent — a big jump that had a pretty much immediate impact on things like the stock markets and crude oil prices. Federal Reserve Chair Jerome Powell hinted at another three quarters of a percent rise, possibly followed by another half percent hike. All of that put crude oil under major pressure on Friday, Martinson said.
Wick mentioned reports of disappointing yields for winter wheat in Kansas and questioned what impact that might have on the wheat market. Martinson said the reports are very early, so they'll take some confirmation to have an impact. However, if yields stay low there in the coming days — and add to poor returns in Oklahoma and Texas — it could put some pressure on the wheat market.
With a three-day weekend on the horizon for traders, Martinson said there was more of a selloff Friday than had been anticipated. He anticipated that traders would "go home with some change in their pocket." Then if there is verification of oppressive heat and no rain, markets could open higher Monday night.
Wick said rain in the past week likely shut down planting activity in the region for good, and he wondered what that might mean for the crop mix in the region.
"In talking to the producers, I think we're a little short on our wheat crop, our spring wheat," Martinson said. "Same scenario plays out for corn."
However, he believes there will be more soybean acres and more sunflowers. Drier weather allowed for improved planting conditions for those later-planted crops.
"In the big picture, I think that'll show up in the acreage report," he said, adding that he anticipates the June 30 Acreage Report from USDA will be friendly to spring wheat and corn but bearish for soybeans.
A "flurry of private estimates" likely will start coming out soon, Wick said, and Martinson confirmed that Informa already came out with theirs. Surprisingly, that showed more corn and less soybeans, which Martinson said would be a big surprise were it to materialize.
On the livestock side, the heat to the south is the big talking point. Expiration of the June contract comes next week, and Martinson said cash and futures need to get "a bit in line." He remains friendly cattle, but said domestic demand is needed. With the average consumer pinched by gas prices and interest rates, "they don't have as much to spend and they aren't going out to eat as much as they were," he said.
However, the weekend could be the perfect storm for beef demand, he said: Father's Day, a hot forecast and a long weekend could mean more people will light up their grills.
The Agweek Market Wrap is sponsored by Gateway Building Systems.