Agriculture Commodities For The Week Ahead: Farmers Get Favorable Weather Conditions For Planting, Adding Downside Risk To The Markets

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Investment Thesis

Add improving weather to the list of bearish variables weighing on the agriculture market. Investors will need to continue to take a conservative approach with the grains.

The U.S. May corn futures finished the last trading day of this short week flat up just 0.07% to $3.5825 on Thursday. U.S. May soybean futures finished up slightly 0.21% to $8.8088, while U.S. wheat was seen lower 0.17% to 4.4525. For the less volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) was seen down 0.20% ($0.03) to $15.24, the Teucrium Soybean Fund (SOYB) was flat 0.00% ($0.00) to $15.72, and the Teucrium Wheat Fund (WEAT) was down 0.78% ($0.04) to $5.12. Pre-market Sunday evening, the U.S. May corn futures are flat down only 0.03% to $3.5838. U.S. May soybean futures were seen up slightly 0.24% to $8.8288, while U.S. wheat was seen lower 0.67% to 4.4188. Figure 1 below is a price trend chart of the front-month May futures contract for corn over the past 7 days.

(Source: Investing.com)

May Chicago Soft Red Winter Wheat (SRW) futures finished Thursday down by 0.4 cents to $4.496, with May Kansas City Hard Red Winter Wheat (HRW) futures down 0.2 cent to $4.260, resulting in a 23-cent premium of CBOT wheat to KCBT wheat. MGEX’s Hard Red Spring Wheat (HRSW) May contract was down $0.42 to $5.232.

Overall, the market just hasn’t been able to find the spark needed for a rally.

Fresh model data from this weekend revealed that the weather is going to be mostly mild to warm and drier across the major crop production centers. This is welcome news from farmers across the central U.S., as fields will be able to begin the drying process, while allowing farmers plenty of time in the fields to continue planting.

The weather pattern in the medium range 6-15 days out will feature a warm Arctic, cool Canada, and mild-to-warm U.S. sequence. Figure 2 below is a global view from the 12z CMC/GEM Ensemble depicting this warm Arctic, cool Canada, and mild-to-warm U.S. pattern sequence in the 6-11 day time frame (April 27-May 2).

(Source: WeatherBELL)

The jet stream, which is a boundary that separates cooler air to the north and warmer air to the south, will move northward near the U.S-Canada border. Coinciding with this northward shift will be the storm track that travels along the jet stream. This means that the heavy precipitation (showers and thunderstorms) will develop and travel mostly north of the corn and soybean belts. Areas that are in line with this active storm track include the northern Rockies and Plains, Upper Midwest, the Northeast U.S, and southern Canada. This will by and large keep the corn, soybean, and spring wheat belts in a drier pattern. Any precipitation that does occur will be from disorganized showers and thunderstorms. Figure 3 is a map showing the 7-day accumulated precipitation forecast across the Lower 48. Most of the precipitation is expected to fall over Texas.

(Source: NOAA)

Figure 4 below shows maps of the 1-7 day (on the left) and the 8-14 day (on the right) depicting a better outlook in terms of precipitation (drier) over the wheat, corn, and soybean belts.

(Source: Tropical Tidbits)

The market’s lack of enthusiasm is a by-product of uncertainties surrounding the U.S.-China trade talks, strong old crop supply of corn and to a greater degree wheat, a lack of strong demand internationally, export competition globally, and now, favorable weather conditions for planting.

Stay tuned for more updates!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

2019-04-22 05:08:00

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