Commodity markets are taking a pause after the recent uptick. Over the past week, Nov16 soybeans came very close to touching $9.25, while Dec16 corn touched $3.90 and Dec16 wheat hit $5.08. The rally has given growers a good chance to catch up on old crop sales and raise some cash for the upcoming season. As a result, the spread between Board and Basis has widened to roughly -10% in both corn and beans across the Western Corn Belt. Basis prices in the ECB remain much tighter to the Board, and in Ohio, are even +3.5% above Board. This rally was driven primarily by a lower USD (and higher Brazilian Real) and weather concerns along the S. Plains. The lower USD was driven by Federal Reserve comments that suggested they would slow the pace of interest rate hikes in response to the sluggish global economy and strong monetary easing policies at other major central banks. The Fed is concerned that if they push the value of holding Dollars too much too soon (higher interest rate = greater long-term return relative to other currencies), that will further slow an already sluggish U.S. export economy. In addition, the Southern Plains have experienced some of the worst spring weather possible for newly-planted crops or those coming out of dormancy. Torrential rains in LA and parts of TX have led to multiple replanting efforts and still some fallow fields, while late spring cold temperatures have put a fair percentage of the region’s winter wheat crop under some stress. The Texas weekly crop progress report shows that the state’s corn is 29% planted (approx. 667,000 acres), which is still on track versus 5yr averages.
Corn Basis Prices: 3/23/2016 Soybean Basis Prices: 3/23/2016
While those numbers are some of the highest we’ve seen in six months, this was very much a new crop-led rally, meaning that the front month May contracts did not move near as much as the year-end Nov/Dec contracts. The trend was most pronounced in wheat, as May contracts fell by 17 cents or -3.5%, while Dec contracts gained as much as 21 cents or +4%. Traditional rallies are generally front-month led, suggesting that traders believe the current oversupplied, high USD, sluggish export situation in the U.S. will continue into summer. But that is when more uncertainty creeps into the market: will U.S. growing weather bring the post-El Niňo blues with higher temps and lower precipitation totals; will the U.S. Federal Reserve hike interest rates four times during the year or scale the number back to two (thereby keeping the U.S. Dollar lower); will emerging market ag economies, especially Russia and Brazil, be able to push 2016/17 production and acreage levels toward even higher records or be dragged down by high inflation and political uncertainty? The crystal ball is cloudy on each of these points, but that is okay. The more uncertainty that exists in this market, the higher and longer new crop price premiums will exist.
A couple weeks ago, it looked like spring planting season was shaping up to be extremely early and warm. But a recent cold snap has put the brakes on some of that progress. Some late season Arctic air has pushed into much of the Plains and Corn Belt. That has brought some rain, sleet and snow into the NCB as well as high winds. The extended maps (see below) show below normal temps and solid precipitation for nearly all of the Midwest. The S. Plains, however, remain locked out of the precipitation window. KS, CO, OK look poised to see overnight temps in the low 20°F throughout the weekend. As one wheat analyst put it, “Combined with the dry stretch over the last 30-60 days, this [winter wheat] crop already has the deck stacked against it.” The PNW will remain hot and dry, but the drought monitor predictions do not point to any severe dryness developing.