More than once I have been struck by how fragile the market's balance can be at times. If not for the one week of favorable planting weather that opened up in 2013 (May 13 to May 19), prevented plantings for corn that year could have been much more than the 3.6 million acres reported by the Farm Service Agency.
Who knows, just a little more rain and U.S. ending corn stocks could have stayed under 1 billion bushels (bb) instead of the more comfortable 1.23 bb achieved in 2013-14. The extra rain could have meant the December corn price holding at $5.00 at harvest time instead of falling to the low $4s as it did.
As the saying goes, "If ifs and buts were cherries and nuts ...." I don't mean to be obsessed with 2013 but do want to remind everyone how these different turns in the road can take us a long way from where we thought prices were headed.
In early May, planting progress was slow, but many remembered that miraculous week in 2013 when the sun came out and planting progress jumped from 28% to 71%. By the way, the progress in 2013 represented actual corn acres, not the fake progress that we saw in Monday's report, which included prevented plantings.
Also in early May, U.S. ending stocks of soybeans and wheat were both near or above 1 bb, and USDA had corn pegged at a hefty 2.485 bb. With big crops on the way from South America, noncommercials were placing record bets on lower grain prices. Finally, talks with China that were once thought to be close to a resolution disintegrated over one confusing weekend. The outlook for grain prices in early May was abysmal.
By now, we all know that one miraculous week of crop-saving sunshine never showed up in May 2019, and we haven't seen it yet in June either. The seven-day forecast remains chronically wet, especially for the central and Eastern Corn Belt. If the National Oceanic and Atmospheric Administration's cool and wet forecast for July is correct, we'll continue experiencing less-than-ideal crop conditions for this year's late-planted crops.
If the bullish surprise of this year's poor planting conditions wasn't enough, we are now starting to see the U.S. dollar index lose its upward momentum -- another supportive feature for grain prices that did not seem likely earlier this year. As it turns out, escalating tariffs with China appears to be one of the contributing factors slowing the U.S. economy, and the U.S. dollar is showing signs of losing steam.
Wednesday's statement from the Federal Reserve referred to "uncertainties about this outlook," which have many now expecting a quarter-percent rate cut in July. The market itself has been tracking the economic slowdown for months as the yield on 10-year Treasury notes has dropped from 3.25% in October 2018 to 2.00% on Thursday's close.
Granted, Europe's economy is offering no reason to expect a significantly lower U.S. dollar, but noncommercials holding 23,989 net longs as of June 11 might not be so eager to hold an asset near its lowest prices in over two months. The Brazilian real also showed unexpected strength on Thursday, posting its highest close in over two months at 26.205 cents.
Thursday's news that Iran shot down a U.S. military drone may confuse markets a bit as August crude oil jumped up over $3.00 a barrel and August gold climbed over $40.00 an ounce. However, we shouldn't ignore gold's move as it posted its highest spot close in five years.
While we wait for a better corn planting estimate to be released on June 28, we have to concede that U.S. soybean and wheat supplies remain bearish for prices. But we also know that investors tend to favor commodities in general when the U.S. dollar turns lower.
The first half of 2019 has already seen unexpected surprises for grain prices, and it makes me wonder what else is in store for the next six months.
As always, stay tuned.
Todd Hultman can be reached at Todd.Hultman@dtn.com
Follow him on Twitter @ToddHultman
© Copyright 2019 DTN/The Progressive Farmer. All rights reserved.