Many farmers and commodity traders were blind-sided by the incredibly bearish USDA crop report on Monday. However, I have alerted paying clients for nearly 2 weeks that the following fundamentals would potentially result in a bearish August 12th crop report. Even if it was not a bearish report, a return of warmer Midwest weather to speed up crop maturity and rains for the dry central and eastern corn belt would likely pressure corn prices soon. In addition, I wrote an article a month ago that the hot spell hitting Europe and Ukraine would likely NOT result in a reduction in grain crops this summer. Indeed, Ukraine will have a record large corn crop at potentially 36.5 MMT. The recent cool July weather across the Midwest corn belt has not resulted in lower crop yields as many had featured. Excellent subsoil moisture and a lack of heat, fooled many “other” analysts who were only looking at this map (below) of more extreme topsoil dryness. What was surprising was the USDA increase in corn yields. However, we have felt, again, the cool July and August weather would not cause a decrease in yields.
Midwest Rains and Warmer Temps on the Way. How I Forecasted This Two Weeks ago.
Many analysts thought the USDA would lower corn acreage and yields due to the wet spring and most recent dryness. The USDA is probably being conservative in their Prevent Acreage estimate and may lower acreage further in future reports. However, the dry weather you see above has NOT been a detriment by any means to corn and bean yields yet. In addition, important rains are coming to Iowa, Illinois and Indiana throughout the rest of August. My main concern is for West Texas cotton that may begin to suffer.
So how did I warn clients close to three weeks ago, about an overall cool pattern extending into August and a return for much needed rainfall? Using teleconnections, such as the weakening El Nino signal and the +QBO index helped us second guess models.
When Nino 1+2 is cool close to the coast of Peru but Nino 4 warmer than normal, we have what we call an El Nino Modoki. Though El Nino is weak, these teleconnections shown by the arrow (below) will cause US corn and soybean conditions to hold stable or increase slightly the next few weeks. On the other hand dryness may continue for west Texas cotton.