Corn: A change in the forecast for Argentina brings a little more rain into the picture. Though amounts have not been increased (still 0.10 to 0.60 inch), the chances of getting the system have increased. Forecasts agree for another shot Thursday and Friday then the middle of next week. We all know the amounts will not solve the drought. The trade is only looking out how the forecast is changing. It is now showing more chances of rain rather than less.
Soybeans: In the past few weeks, we laid out the argument that the rally in soybeans from December to January was one that was to be sold. On Jan. 12, the USDA put the last nail in the coffin. Speaking clearly, the old crop situation is not that bad. Drops in poor U.S. demand will generally be offset by increases in exports. China has bought U.S. product aggressively and Argentina is a production problem. However, this soybean market does not need to encourage producers to plant soybeans.
Wheat: We will not disregard the drought problem in the southern plains. Most of Texas is in level 3 or 4 on a 1 to 5 scale of drought (severe or extreme drought). Oklahoma and portions of southwest Kansas are in stage 1 or 2. Also, the current forecast suggests it will get worse. Temperatures for Texas will remain above normal in the two-week, one-month, and even three-month outlook. Precipitation levels are forecast to be below normal in the two-week and one-month outlook. The situation is serious and we will continue to monitor it. Having said this note of concern, wheat has spoofed the trade many times in the past. Agronomists have told us in the past the key yield-deciding factor for winter wheat is timely rains as it comes out of dormancy in the spring. While no one is saying Texas or Oklahoma will get back to normal yields by harvest ,it is too early to say they cannot recover some damage if rains return in a few weeks.
Rich Nelson is the director of research at Allendale Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.
