Like it or don’t, corn and soybean prices producers receive in the southeast are based on crop potential of Midwestern producers.
That was very evident a few years ago when the Midwest experienced drought condition, driving futures to near record levels, while southeastern producers enjoyed a bumper crop.
This year is no different, and most corn and soybean growers are trying to out-guess the El Nino factor of this year’s weather equation. Factually most weather forecasters have come a long way as it pertains to one long range item. There is a much agreement that a strong El Niño, which begins to fade in November or December, is a precursor to a warmer summer in the Midwest, and very dry conditions at some point in June, July or August.
It’s just a forecast, but pretty solidly based on actual, and solid enough that Darrel Good, University of Illinois economist is willing to take a marketing stance not only for this year, but next…
“We have made a previously made the case for an elevated risk of yields falling below trend values this year, as summer weather is influenced by the fading El Nino episode.
Even after the recent rally, new crop prices may still understate that risk. It will not be surprising to see periods of volatile prices through the summer. Now is the time for producers to establish targets for pricing a portion of both the 2016, and 2017 crops.”
Good means corn and soybeans. The price of both crops are experiencing a sharp rally this month. So where do prices go from here? In the short term, much will depend on how much corn and soybean production potential has been reduced in Brazil and Argentina says Good…
“The magnitude of that reduction won’t be known for a while, but some evidence of the market’s expectation of the crop size will likely be revealed in the pace of US export sales.”
Demand then, for the big crop from last year seems really strong, and when you couple this with production problems in South America, and the better than average chance of a production problem in the Corn Belt this summer, it points towards marketing opportunities.