USDA REPORTS AND THE HISTORIC IOWA WINDSTORM
by Jim Roemer | Aug 12, 2020 | Gold Member, Weather
The USDA showed generally a big crop for cotton. This was even in the face of a Texas drought, raised global wheat stocks and production due to excellent weather in Australia, Canada, and Russia, and of course raised corn and bean production estimates. All of these I expected. I pointed out, for example, that the record early July low night-time temperatures in the Midwest, really had to last for more than just 2 weeks to cause more serious damage. I also painted a pretty bearish picture in wheat recently. That was because only Western Europe and Ukraine saw some summer weather problems. (please go back and read some of my recent reports)
The question now is, how much of the bearishness from mostly ideal, global summer weather is built into the market? Could this be a classic sell (grains) on the rumor and buy on fact situation? After all, demand for such commodities as corn and soybeans is robust. Look, for example, at the pace of corn exports, the highest since 2006! I think corn and soybeans may rally for now.
Another question is “How will Tuesday’s historical windstorm in Iowa affect the USDA’s September crop outlook? This rallied the corn and soybean market back today, but in the global scheme of things, I do not feel it will impact supply that much.
Many farmers and traders around the world also are asking me, “Will there be a bull market in corn, soybeans, or wheat? Should I hedge my corn and soybean at these prices?” Stay tuned, I do feel a post-harvest rally in grains may occur and will have more updates on La Nina and South American weather.
I will address some of these questions when time warrants as we head deeper into summer and fall.
USDA August Crop Report: My Comments in Blue
Corn Production Up 12 Percent from 2019 Soybean Production Up 25 Percent from 2019 Cotton Production Down 9 Percent from 2019 Winter Wheat Production Down 2 Percent from July Forecast Corn production for grain is forecast at a record high 15.3 billion bushels, up 12 percent from 2019. Based on conditions as of August 1, yields are expected to average a record high 181.8 bushels per harvested acre, up 14.4 bushels from last year. Area harvested for grain is forecast at 84.0 million acres, unchanged from the June forecast, but up 3 percent from the previous year. (Possibly 200-300 million bushels of corn were lost from the severe windstorm early this week. Will this make a difference in the overall global supply situation? With demand super strong, the corn market has probably factored in most of the bearish summer weather. If La Nina develops, it could have a bullish impact this winter on South American production. However, cooler weather could still offset the damage from the wind-storm, so I feel a major rally in corn, for now is not warranted but the market could still note of this and rally some in the days ahead. For 2021 this may be a different story and higher corn prices.) Soybean production for beans is forecast at 4.42 billion bushels, up 25 percent from 2019. Based on conditions as of August 1, yields are expected to average a record high 53.3 bushels per harvested acre, up 5.9 bushels from 2019. Area harvested for beans in the United States is forecast at 83.0 million acres, unchanged from the previous forecast but up 11 percent from 2019. (Soybean production the next few weeks will, of course, depend more on the weather than corn. There are still some concerns with a few dry areas in Iowa and the recent severe weather. However, without extreme heat, I cannot say we will see production falling in the September crop report. If it was not for stellar China demand, Nov. soybean futures would be below $8.30 by harvest. US ending stocks above 600 million bushels usually warrants prices, this low.) All cotton production is forecast at 18.1 million 480-pound bales, down 9 percent from 2019. Based on conditions as of August 1, yields are expected to average a record high 938 pounds per harvested acre, up 115 pounds from 2019. Upland cotton production is forecast at 17.5 million 480-pound bales, down 9 percent from 2019. Pima cotton production is forecast at 554,500 bales, down 19 percent from 2019. All cotton area harvested is forecast at 9.25 million acres, down 20 percent from 2019. (From a global weather prespective and my recent comments, I do not see the weather as bullish for cotton. There has been improvement in China, and India. The locusts from Africa have yet to affect production in India/Pakistan. I will look closer at this in due time.) All wheat production for grain is forecast at 1.84 billion bushels, up 1 percent from the previous forecast but down 4 percent from 2019. Based on August 1 conditions, yields are expected to average 50.1 bushels per harvested acre, up 0.4 bushel from the previous forecast, but down 1.6 bushels from 2019. Area harvested for grain is forecast at 36.7 million acres, unchanged from the previous forecast, but down 1 percent from 2019. Winter wheat production is forecast at 1.20 billion bushels, down 2 percent from the July 1 forecast and down 8 percent from 2019. As of August 1, the United States yield is forecast at 51.1 bushels per acre, down 0.9 bushel from last month and down 2.5 bushels from last year's average yield of 53.6 bushels per acre. The area expected to be harvested for grain or seed totals 23.4 million acres, unchanged from the previous forecast, but down 4 percent from last year. (I have painted a bearish outlook in wheat, for the most part. Come fall, I will look more closely as to whether La Nina could affect global wheat yields next year.)
More Signals Of A Warming Planet And Discovering Antarctica
A great article and video here about Antarctica and Climate Change. Climate Change is real, regardless of what other people may have told you. A key “test” will be the next two to three winters and summers. Non-believers are sunspot cycle fanatics, but those theories are probably thrown by the wayside now due to a warming planet.
Major Thunderstorms Hit Corn/Soybean Crops From South Dakota, Iowa to Ohio
The rally in corn and soybeans after a bearish USDA report was due in part to the huge storm this week. It traveled a record 700 miles across the upper Midwest, but also due to the “demand side of the equation. In all of my years of weather forecasting, I never saw such a severe thunderstorm. I think it is too early and difficult to assess how much damage occurred. Together with some dry spots in other parts of Iowa, this is probably one reason why corn and soybeans rallied a bit on Wednesday. We still have harvest pressure to contend with. Again, there are mostly big global crops, so I cannot say we are going into a major bull market in grains.
Though I did not have a “specific corn sell recommendation” on my spread-sheet, traders, farmers hopefully read between the lines about the DOME OF DOOM, last month, mainly being a bullish factor in July, only for natural gas and NOT for grains. Right now, we may be in no-man’s land
See the full video here of the major storm damage to upper Midwest corn last week.
Cooler Weather Coming to Midwest is Beneficial For Crops But Bearish For Natural Gas
A change in the weather pattern towards cooler weather was a key reason why natural gas prices topped out earlier this week. Our spreadsheet booked nice profits on short puts last week . I will advise on fall weather, the hurricane season, and winter, in the weeks ahead.
Cooler weather is coming (above). At the same time, this week’s EIA is not reflecting as much heat as occurred in July (map below). Both are reasons why natural gas prices have eased from their recent highs.
Cool temperatures last week in the Midwest may mean that Thursday’s EIA report will not be bullish. However, given COVID-19 and many other factors with respect to LNG exports, etc. , I am shying away making any high confidence recommendation in this market for right now.
WEATHER WEALTH SPREADSHEET
The only open positions have been long the stock (NIO) and long the Nov $8.60 bean put. We will also add being long Dec. cocoa for aggressive traders only, from the 2440 area on Tuesday with a 23.50 stop. This time of the year, dry weather in West Africa is often NOT a detriment, unless it lasts through the fall. Confidence is only moderate in the cocoa recommendation.
With respect to soybeans, there are too many factors to get a strong feeling one way or the other. The damage from winds in Iowa and strong demand overseas is bullish. That’s balanced against generally good August weather over 75% of the Midwest soybean belt. Some rain is expected in Iowa later this week or weekend. Again, while the Iowa storm damage may be bullish from a psychological perspective, ending stocks over 600 million bushels will probably offer a shorting opportunity on further rallies, on a very short-term, nimble type trading affair for the rest of the summer. Look for corn and beans to possibly rally in the short term as the USDA report (bearish) was probably already factored into prices.
I am tempted to recommend shorting natural gas on rallies. However, I am happy with the recent hot summer and taking profits last week on the long natural gas position in the short October Put for about $1400. The market has since sold off.
Stay tuned for my hurricane updates soon and Climate Predict Models.
Please be aware that come the fall, the cost for the Weather Wealth Spreadsheet and twice a week reports will likely be $1300/month or $10,000 a year. However, some of you will be grandfathered in with the present subscription rate, since you have been a customer for a while.
I will explain this more to all of you, within the next couple of months. I will likely be having two or different versions of my newsletter, as some of you just want weather, some trading ideas, some reports twice a week. I have clients all over the world and trying to service those who want everything from natural gas information to grains and soft commodities.
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