Markets and Major Weather Change - Monday, 28 November 2016

Corn has remained in high demand for several weeks but prices have not responded to the same extent.  Corn prices have remained in a narrow margin and some traders believe that much of the positive price movement we have seen is due in part to the strong soybean market, bears covering short positions and possible dry weather in South America.  The trade is not very concerned at this point about the reports of dryness in South America but according to Kevin Van Trump of the Van Trump Report, “I suspect it won’t take much to pump a bit of weather related risk-premium back in to the marketplace.”

The U.S. has seen 6 consecutive weeks of soybean exports at or over 2.5 MMT’s. This kind of continued, vigorous demand is the major force behind the recent rally in soybean prices.  Weather conditions in South America will be the main focal point driving our markets for the near-term. If the weather looks to be cooperating in South America then prices here in the U.S. could end up lower in the following weeks.  If this occurs not only will we have more soybeans than a year ago, we also have the negative prospects of a record number of bean acres in 2017, perhaps an additional  +4-+6 million acres.

The EPA has announced their final RFS mandate for 2017.  The mandate now requires refiners and blenders to mix 19.28 billion gallons of renewable fuel, this is an increase of 480 million gallons from May.  Some of the specific requirements announced last Wednesday include a minimum of 4.28 billion gallons of advanced biofuels including 2 billion gallons of biodiesel and 311 million gallons of cellulosic biofuels.  This leaves an implied conventional ethanol amount of 15 billion gallons.

Several months ago I showed you data from Purdue University and the CME Group regarding the Ag Economy Barometer they developed to measure the overall attitude and outlook of U.S. producers.  I thought it would be interesting to bring you their latest data collected from 400 producers across the U.S. and reported on November 1st, 2016.  The most recent reading regarding producers’ sentiment was measured at 92 which is the lowest since March 2016 and matches the 2nd lowest monthly value in a year.  In the October survey producers, “revealed strong pessimism about the agricultural economy’s prospects over the next 12 months. The share of respondents reporting that they expect bad times financially over the next 12 months rose to 79 percent in October, an increase of 11 percentage points from the September survey and 16 percentage points from October 2015.  The change in perspective from October 2015 to October 2016 suggests farm financial conditions have weakened considerably since fall 2015.” 



One portion of the survey asks the producers what crop management changes they are planning to make for the 2017 crop year that are a direct result of the current farm economic situation.  The graph below shows the responses in regards to the most popular cost-saving methods reported.  Reducing fertilizer rates received the highest numbers of responses with 46% indicating they plan to decrease this input cost.  In addition 35% said they plan to adjust the variety of seed they will plant or the seed trait package for 2017 and 19% plan to lower their seeding rates.


An Ag Thought Leader Survey is also conducted each quarter as a counterpart to the producer survey.  This survey asks 100 individuals including agribusiness executives, commodity association leaders, Ag lenders and others involved in the Ag sector to give report from their perspective on the current state of the Ag economy and their outlook for the future.  The graph below shows us these leader’s expectations for upcoming July 2017 corn and soybean futures prices. Interestingly these Ag Thought Leaders tend to feel more optimistic than producers regarding upcoming market prices.



The map below shows the predicted precipitation for the next week.  Temperatures are expected to remain at or above normal for this time-frame as well.  The Weather Company has now released their outlook for 2016 into 2017 and they also find that La Niña is likely to be an important factor in all aspects of our weather as we enter the New Year. 

Weather Trends 360 tells us that their forecast model agrees with the US GFS, Euro and Canadian models and all are indicating a major pattern change from and warm and dry to a cold and stormy December.  At this time there are at least 3 to 4 waves of Arctic air heading out of Siberia towards Alaska and Western Canada and is expected to eventually make its way across much of the U.S.  The Western portion of the country will receive its first taste of the colder temps this week with temps ranging 15-20 degrees below average Alaska is expecting extreme cold with temps from -25 to -45 degrees!  By December 8th much of the country will have below to much below temperatures and will begin to see several systems of snow and ice as well.  Our warm days may be coming to a halt very soon!

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