The markets haven’t had many weather issues to push prices higher over the past four years. Record world production has overshadowed record world consumption. That changed briefly last summer when the drought across the Northern Plains drove Minneapolis wheat futures $2.50 higher in just a few short weeks.
That rally also took corn and soybean prices along for the ride, but the rally didn’t last long when August weather turned cooler and wetter and crop yields were better than expected. In fact, the 2018 corn yield again established an all-time record. Black Sea crops were also again huge, and Russia has been dominating world wheat exports.
The weather hasn’t been quite as cooperative over the last several months, either, in South America or in the U.S. It was a mild La Niña winter. La Niña can correlate with drought issues in Argentina, and that is exactly what happened. Much of Argentina has experienced well-below-normal precipitation throughout the entire Southern Hemisphere growing season. The result will be sharp reductions in soybean and corn production in that country. That drove soybean and soybean meal futures higher during February and early March. It gave world producers the opportunity to price production at higher prices than had been expected based on forecasts that world soybean supplies would reach record levels.
Brazil’s soybean crop will again be huge. Parts of Brazil, however, have struggled with too much rain late in the season, and that has caused some harvest delays. Those harvest delays have also delayed planting Brazil’s second corn crop. That will result in fewer planted corn acres and could threaten yields. Delayed planting can push pollination into a warmer and drier weather period. Corn did rally, but that rally was subdued compared to the soybean rally.
The U.S. Southern Plains hard red winter wheat region has also been suffering from a significant drought since last fall. The USDA’s estimate of winter wheat planted acres was slightly bigger than expected, led by gains in Kansas. Not every analyst agreed with the January forecast for more planted acres of winter wheat. It appears, however, that hard red winter wheat yields will be well below average and that the percentage of harvested acres will also be below average because of the drought. The Southern Plains drought coupled with the soybean rally also pushed wheat futures higher, led by the Kansas City market.
The good news for U.S. farmers is that the markets rallied during the month of February. That gave us higher federal crop revenue insurance price guarantees than had been expected. The corn and soybean price guarantees are almost exactly the same as last year. The spring wheat insurance price is 66 cents a bushel higher than that of the initial 2017 guarantee. The initial sunflower price guarantees for 2018 are slightly below last year. The accompanying table compares these insurance prices.
2018 Crop Revenue Price Guarantees ($/bu)
The March USDA reports were considered bearish for the soy complex. The U.S. soybean export forecast was lowered and ending supplies were increased. The USDA did reduce Argentina’s soybean production estimate, but not as much as expected. That estimate is still far above most private estimates.
The March corn numbers were slightly positive. The corn export and ethanol numbers were increased and ending supply estimate lowered. Export demand for U.S. corn has been accelerating over the past couple months as world corn prices moved above U.S. corn prices.
About the time this issue of The Sunflower is published, the USDA also will be releasing their important March 30 planting intentions estimates. The trade has been expecting more soybean and spring wheat acres and fewer corn acres. The market will use these acreage estimates to start building potential 2018/19 supply and demand numbers.
Of course, weather and prices can still bring changes in these planting estimates. The U.S. Northern Plains and most of southern Canada are also extremely dry heading into spring planting. These areas started the 2017 growing season with abundant subsoil moisture. That subsoil moisture carried crops the first half of the growing season. That isn’t the case this year. Some parts of eastern Montana and the western Dakotas had less than an inch of rain over the last nine to 12 months.
Looking forward, the soybean and oilseed markets still have the most bearish fundamentals as we head into the 2018 growing season. Farmers are expected to plant more soybeans and sunflower, based on new-crop prices and insurance coverage. The extent of the Southern Plains drought, coupled with the 2018 Black Sea crops, will determine where wheat prices go.
Corn appears to have the most positive fundamental numbers. World supplies are declining, and U.S. farmers are expected to plant less corn.
* Mike Krueger is founder of The Money Farm, a Fargo, N.D.-based grain marketing consulting firm. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.