Last year, those farmers who had enough moisture to have a corn crop enjoyed some high prices as the drought gripped its hand across most of the corn producing region of the US. In some areas of the Dakotas, corn was ground up into silage as a lack of moisture caused the crop to not mature.
Wheat prices also increased with prices began to be tied to the performance of the corn market. Some think the correlation in prices is from wheat being used as a substitute for corn in animal feed. This gained some popularity last year after corn prices reached record levels.
What a difference a year makes. Weather forecasts are calling for cooler temperatures in the Midwest for the next few weeks. This is during a key time for corn as the crop moves into the pollination phase. Hot and dry conditions during pollination can lower corn yields as this is the critical time when kernel formation is determined. There are still parts of the Midwest with a moisture deficit but increased chances of rain are on the forecast for the next two weeks. I can attest that the fields I have seen in this area of the country are lush and green compared to the brown and dry conditions last year. Bottom line is the cooler and wetter year increases chances for a record corn crop this year.
Corn prices are also depressed from strong increases in supply from other corn producing countries. Argentina announced an increase of 6 million tons of corn production. Most of the additional production is available for export, which will push down corn prices further. Currently, large speculators and funds tend to hold net-long positions on corn futures while the small speculators are bearish on the future of corn prices. The prices tend to favor the bearish position with prices falling from over 650 for December corn in September 2012 down to 487 where it is now. But note, that any change in the weather conditions could cause a spike in prices as short position holders seek to cover themselves.
Wheat is in a similar trend. Note that September Wheat has dropped from over 900 last fall to 640 where it is today. Now going into the fall, traders will watch with keen interest the Spring Wheat crop performance. Average yields are expected to fall below last year’s levels due to late plantings this season. The Wheat Quality Council in North Dakota has estimated a Spring Wheat yield at just under 45 bushels per acre.
Wheat prices are being depressed with the strong corn crop, as many will switch back to corn instead of using wheat for animal feed. Lower wheat prices will help US Exports but abundant global wheat supplies are sending Middle Eastern and North African buyers to purchase wheat from the Black Sea region where cash prices are the lowest among major exporters.
The Sep/Dec Wheat spreads in Chicago and Kansas City are turning bullish, indicating that commercial buying and increased exports could be emerging. This can add some support to prices.
The bottom line is that both corn and wheat prices will be lower than last year. But a careful eye will be kept on these markets for the next few weeks by traders and farmers to determine where the price level will be.