Wednesday, June 16, 2010
Hedge Your Bets With A Delayed La Nina
In some parts of the Cornbelt water is not only ponded in fields, but is flowing across roadways, filling ditches and keeping pressure on field tiles. If memories of 2009 have faded, we are getting a retread with surplus moisture. Some farmers are reluctant to ask for it to stop, because it may be the last moisture for the season if meteorologists are correct in their predication of a La Nina weather pattern. La Nina means warm and dry for much of the Cornbelt, and it may also bring a marketing opportunity.The Drought Monitor may be one of the websites you periodically visit, but if not, watch the anticipated progression of browns and yellows across the country. There have been noticeable changes in the past two weeks, although there are no indications of dryness yet in the Cornbelt, says Iowa State University economist Steven Johnson. His June marketing newsletter suggests that the arrival of La Nina or the potential arrival may be a marketing opportunity.
NOAA’s Climate Prediction Center indicates that El Nino has faded away and La Nina will form in the June to August span. Johnson says the rate at which the Pacific water temperature has cooled has slowed down, which would slow the development of a La Nina. He says, “Thus the adverse weather concerns may not be realized during the growing season, providing producers a marketing opportunity.”
The grain trade is focused on a La Nina weather pattern bringing drought-like weather to the Cornbelt, and they are looking at 1983 as the model for this year. You remember 1983, when Mother Nature signed up for Secretary John Block’s PIK program, and we had both idle acreage and dismal yields. Johnson says a bullish feeling is building on the Chicago Board of Trade, even though both corn and soybean crops are off to a good start and even a little bit of heat will help maturity and dry up some of the standing water. Johnson says the corn crop remains in good shape now, and while beans may be more vulnerable to a La Nina, they are well ahead of normal in crop development.
Johnson says timing is critical if La Nina impacts the market. He says the corn will pollinate in July, beans will be made in August, and if the La Nina forms after that, there will be minimal crop impact. One benefit will be fall dry down will hasten and harvest will be much improved compared to last year. Johnson says if the market rallies this month in response to a La Nina, selling both old and new crop futures would be the best strategy. While some farmers may not want to sell a crop that has not been harvested in a potential drought year, Johnson says watch your crop maturity and the crop may already be made by the time the market rallies.
In addition to selling futures, Johnson says you will have to address the basis at your local elevator. He recommends setting the basis for fall crops earlier than normal. He notes, “With the potential for large 2010 crop production and much of the corn crop being planted early, a wide harvest basis is more than likely this fall.”
Summary:
The arrival of a La Nina weather pattern means the potential for warmer and drier weather across the Cornbelt in the June to August time period, which includes the time that corn will pollinate and beans will bloom. Farmers watching the maturity of their crops will know when the crop is made, and that may be prior to the arrival of La Nina, which also means more market volatility. Knowing how much crop can be sold, an astute marketer will be able to sell both old and new crop futures, as well as setting the basis on cash deliveries to the local elevator—all before the market collapses.
Posted by Stu Ellis on 06/16 at 01:25 AM | Permalink
Comments
Posted by: Big Pitcher Anne at June 16, 2010 12:12PM
Adding to Johnson’s Message
The 2010 corn crop seems better positioned for a La Nina than the 1983 crop. Current growing degree days are near normal or ahead of historic pace this year in the main corn growing areas. This does not appear to be the case in 1983. Earlier hybrids have been planted with last year’s grain moisture and maturity issues; especially in the northern area. These two factors should push silking earlier into the season. This could minimize La Nina’s stress at a critical time. (The earlier pollination could lead to earlier harvest which may alleviate any old crop supply pitch, should it occur.) Soil moisture levels in the main growing areas are generally in much better position to withstand La Nina this year than 1983. Corn’s ability to withstand stress is much greater when soil moisture is adequate going into a stressful time. (Is that a Da! or what?)
We may want a “little” La Nina. The way it stands now (pun not intended), this crop could add 600 million bushels to USDA’s current new crop ending stocks.