Views on commodities and energy
The impact of Hurricane Gustav will be the key to Chicago Board of Trade grain markets when they reopen on Monday night for screen trading following the three-day Labor Day holiday weekend, with traders keying off crude oil prices for direction.
“We’re watching Gustav. The energies will be trading on Monday and could influence the overnight Chicago markets if the energies are doing anything wild. We’re going to see if it pushes any rain into the Midwest or not,” one Chicago grains analyst said.
By midday on Monday, the New York crude oil market was down more than $4 a barrel to around $111 — and falling — after Hurricane Gustav was downgraded to a Category 2 before its landfall on U.S. Gulf Coast 70 miles west of New Orleans on Monday. Energy traders were heaving a sigh of relief on optimism that the storm will not be making a Katrina-like slam on Gulf of Mexico energy operations.
With New Orleans levees holding — for now — grain traders will also be more optimistic that the storm will not swamp the grain export terminals there. New Orleans, Mobile and Texas ports handle more than 70 percent of U.S. grain exports, the world’s largest.
So for Monday night’s CBOT opening, grains are likely to follow the sharp pullback in oil.
But despite what looks like a near-miss with Gustav, grain traders note that as of Monday weather forecasters still point to five storms brewing over the Atlantic that have the chance to develop into tropical systems. No doubt Mother Nature will keep traders on their toes this week.
One benefit of the storm could be more rains moving north this week into dry areas of the Midwest where maturing corn and soybeans could really use a drink. That would be bearish.
On the other hand, heavy rains in Louisiana or Arkansas will put the rice harvest, already delayed, at further risk.
The rain and wind from Gustav and possible damage to Gulf export terminals could also stall grain and soybean shipments out the U.S., another bearish factor. Broken levees would cause wake restrictions and other limits of river vessels, slow or close lock operations, and so on.
Traders are expecting the U.S. government to cut its ratings of corn and soybeans 1-2 percentage points in this week’s crop report that will be issued on Tuesday after the CBOT market closes. The focus will be on the eastern belt — Ohio, Indiana and Illinois — which has been hotter and drier than the western Corn Belt, traders said.
Analysts also will be updating their forecasts of the 2008 U.S. corn and soybean crops this week, ahead of USDA’s September 12 report. Brokerage FC Stone will be the first, scheduled for release on Tuesday afternoon. Memphis-based Informa Economics will be out later.
Last but not least, the direction of the dollar has had a big impact on Chicago grain markets. That trend is expected to continue.
As the dollar on Friday ended its best month in over a decade, corn, wheat and soybean prices deflated — along with speculative open interest. The rally in commodities over the past 18 months or so has largely been linked to the weakness in the dollar, which makes U.S. commodities cheaper for overseas buyers.
“If the bottom is in for the dollar, it’s going to hard for commodities to gain,” one Chicago floor broker said.
More than 70 crop scouts began making their way home from Austin, Minnesota, on Friday after a week of 10-hour-long workdays counting and measuring corn and soybean yield potential through seven top production states around the U.S. Midwest.
Based on the week’s findings in 2,100 fields and other data, tour leaders Pro Farmer newsletter released their 2008 corn and soybean production forecast early on Friday.
They projected U.S. corn production at 12.152 billion bushels with the average yield at 153.3 bushels per acre. Soybean production was pegged at 2.930 billion bushels with an average yield of 39.95 bushels per acre.
The corn estimate was below the U.S. Agriculture Department’s latest projection for 12.288 billion bushels and the soy production was under USDA’s 2.973 billion bushels forecast. USDA estimated the average corn yield at 155 bushels per acre and the soy yield at 40.5 bushels per acre as of August 1.
But much has changed in the Midwest over the past three weeks. What some referred to as near-ideal crop weather earlier in the growing season was no longer the case.
As the Pro Farmer Midwest Crop Tour’s two legs departed on Monday from Columbus, Ohio, and and Sioux Falls, South Dakota, crop scouts were already aware that variability and crop immaturity would be a big part of the story of this year’s corn and soybean crops. Scouts on the eastern leg quickly realized that dryness would be another major theme after finding gaping cracks in concrete-hard soils in most Ohio fields. The word was passed on to western scouts who were touring a surprisingly robust South Dakota corn crop and some of them remained sceptical until they saw for themselves as their routes moved east.
Crop scouts will always welcome cool, dry weather during the crop tour, but it was difficult not to feel compassion for farmers that had not received any rain at all since July. Meanwhile, crop development in some fields was as much three weeks behind the normal pace, setting the stage for some nail-biting in the weeks ahead of the average first frost dates, which range from late September to mid-October depending on location.
Tour organisers, farmers, and agronomists repeatedly stressed at evening meetings that most fields need rain immediately or else the yield estimates pulled from fields this week would begin eroding.
Signs of a soggy start to the growing season were all there too, from washed out plots and replanted acres to swathes of pale green leaves on corn plants, a sign shallow root systems and nitrogen loss. Tops of fields that would normally look flat and uniform were discoloured and filled with potholes. Soybeans were planted in washed out patches of corn fields in wavy rows.
All eyes now turn to the weather map. Soybeans need moisture to finish setting and filling pods. Corn needs just enough rain in the near term to add weight to undersized kernels, but not too much rain as that could slow down the crop’s already delayed development. And both crops will be racing for a photo finish in some areas, trying to get to the grain bin ahead of the first frost.
Farmers around the U.S. Midwest hope that this year’s growing season will stretch out a few days longer than usual into the fall to make up for the slow start to the growing season. Corn and soybean crops around the U.S. Midwest are depending on a warm and rainy finish to the growing season to reach the full potential predicted by crop scouts on the Pro Farmer Midwest Tour.
To try and forecast the date of the critical first frost, which could devastate thousands of acres of crops that were planted late due to cold and wet conditions in the spring, farmers are looking to the sky. Or to be more specific, they are looking at the moon.
Windmills are becoming increasingly common around the Corn Belt due to environmental concerns about traditional sources of power generation.
Crop scouts touring corn and soybean fields around the eastern Midwest this week have seen more than their fair share of the bizarre thanks to an abundance of moisture at planting and early in the growing season that forced some growers to cast off conventional farming practices and get creative.
In eastern Illinois, heavy June rains on top of saturated soils drowned out freshly planted corn in some areas, sometimes more than once.
The solution to fill those gaps in their valuable farmland? Plant soybeans, which can be seeded later in the season than corn.
However, harvesting grain from those mish-mosh fields could be challenging. Farmers will have to turn on their GPS steering systems and navigate their combines around islands of corn that were lucky enough to survive the early season washout.
Even veteran crop scouts that claim to have seen it all were baffled by the sight of one field in Edgar County, Illinois. After pooling water drowned out parts of a corn field, the farmer replanted the areas with soybeans. But some of the corn along the edges of the waterlogged patch survived and emerged along with the soybeans, leaving several overlapping rows with nearly mature grain-yielding corn and soybeans.
USDA claims to have accounted for washed out acres in their harvested acres estimates, but those uneven swathes of corn and soybeans may still cause headaches for Pro Farmer crop experts on Thursday night when they will gather at the tour’s conclusion to come up with their yield forecast for both crops.
Sharp edges on the leaves of corn plants, an unseen hole by the side of a field waiting for a car, a barbed wire fence protecting soybeans. All of these are hazards faced by crop scouts every year, not to mention the possibility of losing a boot in a muddy corn row.
But the biggest threat to scouts comes from farmers. Specifically, farmers who are infuriated by people trampling through their fields and damaging their crops. Stories abound about farmers making physical threats to scouts they discover in their fields.
All work and no play makes crop scouts very dull.
To break up the routine of tramping through fields, counting soybean pods and calculating corn yields, crop scouts try to soak up some of the sights, sounds and smells of the attractions around the nation’s Corn Belt. After all, there’s nothing like a summer road trip.
Scouts on one of the routes on the western leg of the Pro Farmer Midwest Crop Tour took a detour early Monday morning to check out the world famous Corn Palace, an events center in Mitchell, South Dakota. The exterior of the Corn Palace features murals made from corn, a tradition started by 19th century settlers to prove the fertility of the South Dakota soil. This year’s theme, “Everyday Heroes” was illustrated by pictures of people such as firefighters and teachers displayed on the front of the building.
The old adage “rain makes grain” could use a revision this year… at least in Ohio. It should read “properly timed rain, distributed uniformly throughout the growing season, makes grain.”
An abundance of moisture this past spring stalled planting by several days to several weeks. Conditions later improved and crop development pushed ahead in Ohio, but then it turned very dry in early July.
Signs of this year’s challenging weather are evident throughtout the state.
Corn cobs are undersized and kernels are smaller than desired. Agronomists on the tour think abundant moisture this spring did not challenge corn plants to set deep roots and now that conditions are drier, the moisture they need is out of reach.
Soybean plants could be waist-high in one spot of a field and barely reaching the knee just a few paces away. Areas drowned out by excessive moisture this spring are now dusty and dry, with cracks so wide you could twist an ankle.
“If this area is not considered to be under drought, it should be,” said Mark Bernard, a crop consultant with the eastern leg of the tour.
According to the latest U.S. Agriculture Department’s drought monitor map, the region is not even considered abnormally dry, although more recent USDA data has shown a steep decline in soil moisture ratings.
As of Sunday, Ohio topsoil moisture was rated 65 percent short to very short, compared with 43 percent a week earlier.
The area’s soybeans, which are currently setting and filling pods, could benefit from the remnants of Tropical Storm Fay which is approaching the U.S. Gulf Coast. Corn could also use some moisture to boost grain size, but some corn plants are already shutting down.
Forecasters say the precipitation could arrive in Ohio by this weekend.
The annual Pro Farmer Midwest crop tour kicks off bright and early on Monday morning, giving participants a sneak peek at this year’s U.S. corn and soybean crops, valuable information that has the potential to send the futures market on another roller coaster ride this week.
Severe flooding wreaked havoc on the newly seeded crops early in the summer, sending prices for both commodities to record levels.
Good growing weather throughout July and August allowed the plants to recover nicely during the past six weeks and have left much of the crop looking very good from the roads. But farmers and agronomists insist that conditions are worse in the middle of the fields.
The crop tour provides a perfect opportunity for those who want to see for themselves how the developing corn and soybean plants look. Scouts get down and dirty inspecting fields around the U.S. Midwest, counting soybean pods and ears of corn to estimate yields while taking note of any insect of disease issues.
The tour means early mornings and long days for the scouts, something that farmers are accustomed but the schedule can be jarring for some of tour’s participants, including commodities traders, journalists and USDA officials. Bug spray, sun block and boots are a must for participants, quite a change from standard cubicle attire.
Rain, a boon for the crops, can be the scourge of crop scouts as they scramble through the fields to get samples. Crop scouts also face challenges ranging from tricky navigation on country roads to the possibility of an angry farmer who does not want scouts trampling through his fields.
The tour consists of an eastern leg and a western leg. The two groups will converge in southern Minnesota on Thursday afternoon. Final yield projections for both soybeans and corn will be presented on Friday.
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