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Weather clouds U.S. planting outlook
The heart of the U.S. grain belt is entering its prime planting time, but Mother Nature is casting a shadow that is making farmers and markets nervous.
Cool, wet conditions are limiting fieldwork and delaying seeding, raising potential for a switching of crops and for frost damage to yields before harvest. Both concerns will be key market drivers for grains in the coming week.
“It’s the weather and how much or how little planting was completed — that’s going to be our focus short term,” said analyst Shawn McCambridge with Prudential Bache Commodities.
Several spots across the Midwest got a break from rains late last week and over the weekend, giving farmers a window to plant. But weekend rains in the western Corn Belt, which could move eastward early this week, may stall planting again.
Seeding of corn, the biggest U.S. crop, is running about five days behind normal, the U.S. Department of Agriculture said last week. Corn is planted before soybeans and delays can cause switching during the spring, a closely watched supply factor.
USDA updates seeding progress late each Monday afternoon, with grain traders expecting 15 percent to 20 percent of U.S. corn to be seeded as of Sunday. They also expect 3 percent of U.S. soybean acreage to have been seeded.
Any big divergence from those expectations will likely rattle Chicago Board of Trade grain markets on Tuesday.
The northern Plains spring wheat belt is also wet, a worry that underpinned U.S. wheat prices last week. Spring wheat, grown mostly in the Dakotas and western Minnesota and a key protein blend for flour millers, may be reported at only about 20 percent planted. That would lag the usual pace of 35 percent by late April.
“It’s looking like May weather is going to dictate how much corn is going to get planted versus beans. If it stays wet there is the potential for the shifting of corn into beans,” said Mike Palmerino, a forecaster at DTN Meteorlogix.
The ideal planting time for corn in the Midwest is now through mid-May. As a rule of thumb, corn yields can drop 1.5 bushels per acre, per day for every day fields are not planted by May 15. That is the incentive for switching corn acres into soybeans, which has a shorter growing season. But farmers, who have booked expensive corn fertilizers, do not like to switch.
PRICE SPREAD TO TRACK EXPECTATIONS
Still, farmer psychology will continue to be reflected in the play between Chicago Board of Trade November soybean futures <SX9> and December corn <CZ9>, the key current spread trade for the coming harvest supplies this fall.
If it keeps raining, then December corn will gain on November soy; if it turns dry, corn will lose to beans. Last Friday’s market action illustrated the sensitivity to weather.
CBOT December corn closed 4-3/4 cents lower at $4.06-3/4 a bushel, while November soy closed 9-3/4 higher at $9.33-1/4. The reason? Cropcast, a respected weather service, forecast below-normal rains and above-normal temperatures for May 8-23.
Another price relationship being closely tracked is July 2009 old-crop soybeans <SN9> and the new-crop November soy. July is trading $1 a bushel higher than November, reflecting this season’s tight remaining U.S. stockpiles due to China’s continued big appetite for U.S. soy for food and feed.
“Export business will probably remain the main issue for soybeans,” said Mario Balletto, a Citigroup grains analyst.
China’s soy imports for January-to-March were up 30 percent from a year ago at 10.15 million tonnes, China’s customs reported last week. The United States supplied the most at 8.4 million tonnes — up 44 percent compared with the same period in 2008.
Aside from weather and export news, outside markets will still play a role in grains. Equities, oil and the dollar are closely watched as barometers of the global economy, thus demand.
Another wild card is the swine flu outbreak in Mexico, which is feeding fears about a potential spread to the United States and other countries. Consumer panic is never good for markets.
“Fundamentals will direct prices unless we have a large shake-up in the outside markets,” McCambridge said.
Chicago Board of Trade May soybeans <SK9> closed down 1 percent for the week on Friday at $10.40-1/4, and May corn <CK9> was nearly unchanged at $3.77. CBOT May soft red winter wheat <WK9> rose 1.8 percent to $5.32-1/4 on spillover support from last week’s strength in the Minneapolis spring wheat market.