August weather leads to improved price outlook for fall

In last month’s column I encouraged you to keep an eye on weather, thinking more on a global scale. Never could I have foreseen the horrific effects the derecho storm would have on Iowa, followed by a furnace blast of heat and lack of rain for much of the Midwest.

These two events have changed the outlook for grain yield potential for our great nation, and may have started the beginning of a price rally as we head to harvest.

Lower yield and overall production

The production loss to the crop in Iowa post-derecho will take weeks and months to fully understand. Images on social media show some farmers that are disking up their fields; what had the potential to be a record crop, is now ruined due to snapped stalks. Some farmers will attempt to harvest down corn. Some leaning corn is said to be going out of condition. Some ears have mold, and some plants are showing signs of life. The U.S. Department of Agriculture will account for some of this production loss in its September report.

In talking with clients across the Midwest, crops are racing toward maturity due to the excessive heat endured during the month of August. What many producers were hoping would be bin-busting yields, have whimpered into less than trend line potential. Recent crop tours started to pick up on the flash drought, however, even since those tours occurred, yield potential has been reduced further for the corn crop.

Soybean yields have likely also been reduced. Some producers have witnessed their soybean plants aborting pods, with some pods only having one or two soybeans within the pod. Will a late rain from hurricane Laura be enough to save the crop and save yield potential? Traders are anxiously watching the storm path after it makes landfall, and potential rain amounts. Regardless, the loss of yield potential will likely be enough to be supportive to price on the USDA balance sheet. Less production and still strong demand will make for lower ending stocks.

Longer term outlook

With the recent weather events, price outlook has improved for grains. As we head into the last months of 2020, and early 2021 there are a few things brewing globally that really have my attention. Keep in mind it would take a perfect concoction of sequential fundamental occurrences to justify a bullish story. Yet, we just may be setting up 2021 for just that.

The U.S. Dollar index is testing major support levels on the monthly chart. That testing continued this week. Should support break, and the value of the dollar drop lower, that will be fantastic for our export demand due to currency exchange rates.

Next, we continue to keep an eye on the weather situation in China. Major rain occurred during August in already flooded southern China where the rice crop is grown. Rice is an important food staple for China, and there is no word yet on how much of the crop is lost or damaged. Northern China suffered dry conditions. While China will likely never disclose the true nature of any crop loss, what we can do is continue to monitor its imports of grain, not only from the United States, but South America as well.

Speaking of South America, La Nina is potentially forming. If it comes to fruition, South America would likely suffer a hot and dry growing season later this year.

It would take a perfect blend of the above global demand and weather issues to justify any type of significant price rally ahead. In the meantime, don’t lose sight of any opportunities in front of you. Make sure you are current in your marketing tools to know how to manage risks and opportunities ahead.

Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].