Weather becoming top focus for markets

Joe Camp
Freshly worked up fields and a herd of Holsteins make for a bucolic farm scene in southern Eau Claire County.

Spring has arrived and with it comes the promise of a new planting season. A wet start is putting to test ideas about major gains coming for corn acreage after a short fall had compressed the window for fertilizer applications.

The market was quick to price in acreage intentions estimated by the March 29 Prospective Plantings report, traders knowing that the numbers may change dramatically if spring weather stays disruptive. A rough consensus remains to call for corn area near 91 to 92 million acres and soybeans near 86 to 87 million acres.

Growers in central U.S. are still drying out after a 'bomb cyclone' dropped enough rain to flood hundreds of thousands of acres and cause more than $3 billion in total damages.

Market impact also is being felt from perished old crop stocks and the shuttering of rail lines and more than 10 percent of the nation's ethanol producing capacity.

Worries about spring planting delays and preventions may well eventually give way to optimism about summer production prospects, given that the majority of the Corn Belt will be carrying substantial soil moisture surpluses into the season.

Most meteorologists credit El Niño for the wetter bias represented by current long-range forecasts. El Niño has helped to warm ocean waters west of Mexico in a way that is conducive to wetter weather in the southern and Midwest regions of the U.S.

El Niño also may still have more to say about production prospects in South America. Growers in Brazil and Argentina were afflicted with some of the adverse weather influences normally associated with El Niño, namely too much water in parts of Argentina and too little throughout the key growing areas of Brazil. Both countries will still haul in strong row crop harvests this year, but El Niño's impact has been to take away top-end yield potential. A slow exit for El Niño could still cause some trouble for Brazil's 'safrinha' corn crop.

The uncertainty of spring weather may create better opportunities for marketing in the few months ahead. Patience on sales should remain warranted as the usual seasonal risk premium starts to show up in prices.

General patience, while seemingly justified, should not turn into complacence. Our analysts will still advocate a scale-up sales plan that encourages small sales to be made as prices rise toward elevated price targets. Consider matching cash sales with replacement hedges like the long call option to stay open for participation in possible upside in the futures market.

Options are not suitable for everyone. Likewise, there are risks associated with seasonal-based marketing strategies that should be fully considered. Talk with your advisor to discuss if these strategies may fit into your marketing program.

A farmer once said that the only thing worse than a market analyst is the weatherman. Prepare to hear much more from the market analysts about weather's possible influence on prices in the coming weeks. And this spring, plan to take advantage of price strength that may follow from the usual seasonal injection of weather-related risk premium.

Joe Camp

Camp is the risk management specialist for AgriVisor, one of WFBF's member benefits.