Ron Sterk

Steadily declining U.S. Department of Agriculture weekly crop condition ratings continue to drive moves in U.S. grain and oilseed futures, with crop conditions around the world also contributing to what has become a major weather market in 2017.

The most obvious case has been in spring wheat, where the U.S.D.A. rated the crop in the six major states 34% good to excellent, 25% fair and 41% poor to very poor as of July 16, compared with the initial rating for the season of 62% good to excellent, 32% fair and 6% poor to very poor as of May 28 and compared with 69% good to excellent, 24% fair and 7% poor to very poor a year ago.

Minneapolis spring wheat futures responded, with the nearby new-crop September contract surging 51% from its May 31 low to its July 5 high, with the closing price up 42%. Futures pulled back some the past two weeks as the market realized the rapid increase may have been overdone, but prices still were up about 35% from the end of May. The meteoric increase was the result of severe drought gripping the heart of the key Upper Midwest spring wheat growing region, which was reflected in the plunging crop condition ratings, and the increasingly apparent low average protein of the hard red winter wheat crop for which harvest is moving into its final stages. Higher protein spring wheat is needed to blend with low protein winter wheat to achieve milling qualities required by bakers.

Crop conditions around the world have contributed to what has become a major weather market in 2017.

The typically lightly traded Minneapolis spring wheat contract set numerous trading volume records during the surge and pulled much larger Kansas City and Chicago winter wheat futures as well as corn and soybean futures higher in its wake.

Attention last week turned more to U.S. corn and soybean crops as ratings, while not nearly as dire as spring wheat, also declined. Corn was in the heart of its critical, yield-making pollination stage with 40% of the crop silking as of July 16, while soybeans were 52% blooming and were entering their key yield-determining pod setting stage at 16%, the U.S.D.A. said.

The corn crop in the 18 major states was rated 64% good to excellent as of July 16, down one percentage point from a week earlier and from its initial rating May 28, but down from a season high of 68% on July 2 and well below 76% at the same time last year.

With the market jittery about weather, the modest decline as of July 16 (released after the close July 17) sent the new-crop December corn future up about 3% during the July 18 session. The December future started the run at $3.91 a bu on May 31, followed spring wheat up to $4.14¾ by July 10, a gain of 6%, only to tumble 8% by July 13 due to bearish U.S.D.A. supply-and-demand data, and then turn higher again last week on renewed weather concerns.

Crop chart

The soybean crop in the 18 major states was rated 61% good to excellent as of July 16, down from 62% a week earlier, 66% as the initial rating on June 11, 67% as the season high on June 18 and compared with 71% at the same time last year. The new-crop November soybean future was at $9.18¼ a bu on May 31, rose 4% to $9.54¾ by June 30, surged to $10.43 on July 11 (up 14% from May 31), and was trading around $10 last week, up more than 80c, or 9%, from May 31.

The question is, what lies ahead for the remainder of the growing season. With spring wheat harvest under way and a much smaller crop to harvest than last year, it may be safe to say the bulk of the weather impact has run its course for spring wheat. But that is certainly not so for corn and soybeans, which are in their key reproductive phases.

Most meteorologists agree moisture levels are sufficient to get corn and soybean crops through the critical reproductive stages from now into mid-August, even though there are areas of dryness (and an area of excessive moisture in the eastern Corn Belt) that are of concern. The crops will not suffer the same fate as spring wheat, although yields, and thus production, likely will fall from initial expectations. At the same time, there are forecast bouts of rain and cooler weather, which would drive prices lower, as well as a forecast period of hot, dry weather in mid-August, which would push prices higher. In other words, typical volatility in a weather market.