Over a period of almost 30 years writing this column, I always like to say that I’ve seen it before. So when I look at some of my water damaged fields, I harken back to days gone by. However, that still doesn’t make me feel better. In southwestern Ontario many of us have been inundated with heavy rains damaging crops and preventing first-time planting for many. Let’s just say I’m hoping for a little dry spell to get that sprayer back in the field next week. Who knows, I might even try to replant some of those drowned out places.
That may also be on the minds of many farmers across the US corn belt. We all know the phrase “rain makes grain” and that probably still holds. Needless to say, every farmer knows that heavy rains when the crop is young over an extended period of time can often take the cream off the crop potential. Many grain analysts are now saying that the USDA will have to adjust yield down based on the very wet weather in many parts of the US corn belt. With tropical storm Bill currently curling up through the American Midwest bringing more rains to places like Missouri, crops underwater although not widespread is certainly challenging USDA yield predictions. The question is how will this affect prices if the soybean acres are planted and the corn acres compromised?
Keep in mind that this is not Canada we are talking about. For instance in Essex County in the extreme southwest of Ontario many thousands of acres of soybeans have still not been planted the first time. They have been inundated with wet weather there all spring. We all know that the later in June we go the less yield potential there is for the crop. Ditto for myself near Dresden Ontario. However, each year some soybeans get planted in late June and make it to the finish line. In the US corn belt, the warmer climate will give our American friends more opportunity to salvage acres that might be underwater now.
This is all happening at a time when we’re going into one of the most important USDA reports of the year. On June 30th we will learn the actual acreage planted from the USDA based on an early June survey. Typically, market action can be explosive that day and it will likely happen again. The optics of wet fields showing up on everybody’s Twitter feed is now having an effect on the market. Soybeans have climbed approximately $.40 over the last few days.
The question I have is it all real? It gets back to whether “rain makes grain” or not. We’ve all had instances in the past where a drought was snuffed out by a beautiful 1-inch rain. That will generally spring a crop into greater things. On the other hand when you have heavy rain inundating young crops, it’s like they have one hand tied behind their back all year. Yield potential gets compromised. For the greater United States, it’s hardly likely that the 89.2 million acres of corn will be all drowned out. The question is, how much yield potential has been lost with overly wet weather in the last several weeks?
As a refresher for June 30th right now we are looking at 89.2 million acres of corn planted with a projected yielded 166.8 bushels per acre. For soybeans, we are looking at 84.6 million acres with the yielded 46 bushels per acre. My question is what happens if uneven wet weather now and possible uneven weather ahead reduces corn yield down to 160 bushels per acre? What happens if all the American soybeans don’t get planted and the ones already planted are damaged? How high can prices go?
Simply put, the sky is not the limit especially in soybeans, which has very big US and global stocks. It’s not corn either even though 1.771 billion bushels of ending stocks is nothing to sneeze at. I’ve said it all year that corn demand currently running at 13.760 billion bushels and growing won’t be easily tampered if supply goes south. Currently, USDA is predicting production this year of 13.630 billion bushels, less than annual demand. If we drop back to 160 bushels per acre yield from 166.8, that’s approximately 600 million bushels of corn giving us a crop of 13.072 billion bushels. This is still huge, but it would drop our ending stocks down to approximately 1.1 billion bushels and price would have to go up to ration demand.
This is happening at a time when the tremendous Brazilian second corn crop is moving into world markets. We all know what our South American friends can do with soybeans. Soybeans are always the great liars and hopefully they’ll surprise me with yields this year, but I have no idea whether they’ll be plus or minus 46 bu/acre in the United States. With onerous ending stocks, they might not have as much price potential as corn. However, the monthly soybean chart is toying with a bullish reversal, so you never know.
Of course at this time of year it boils down to whether mother nature plays nice or not. So far in southwestern Ontario, for many farmers, it’s not so nice. For our American friends with waterlogged fields, it’s not so nice. The question is how will this affect total crop numbers and how will this affect price? 2015 is shaping up different than 2014. Managing risk in this environment continues to challenge.