Although a seemingly elementary point, weather is a principal X-factor that affects corn, wheat, and soybean prices, as well as the futures markets for these commodities . It’s an integral part of the evolving supply/demand curve, as well as being the single largest influencer of production. Simply put, the weather is an elite driver of ag commodity pricing.
The 2019 crop year brought an abundance of weather-related challenges to farmers in the U.S. Midwest. Extreme levels of precipitation destroyed stores, delayed plantings, and stressed inventory projections. Subsequently, bullish price action ruled springtime corn, wheat, and soybean prices.
Widespread Flooding Leads to Delayed Plantings
The primary underpinning of the corn, wheat, and soybean futures markets is the principle of scarcity. Assuming a base level of demand, corn, wheat, and soybean t prices tend to rise when supplies are limited; 2019 featured record-breaking precipitation levels and threatened the production/supply of Midwestern ag commodities.
According to the U.S. National Weather Service (NWS), the North American winter season was extreme in terms of snowpack and rain. From central Iowa to southern Minnesota, and extending to northeast Wisconsin, precipitation levels measured 200% of normal. Certain areas received 20 to 40 inches above averages, ultimately leading to concentrated flooding throughout the Midwestern production region.
While rain and snow are typically good news for producers, the levels seen in 2019 were a force to be reckoned with. Plantings were delayed at historic levels, driving significant participation to the futures markets. As of May 28, 2019, USDA estimates showed a major discrepancy in the year-over-year planted acreage local to producing regions:
| Crop | Acreage Planted 2018 | Acreage Planted 2019 |
|---|---|---|
| Corn | 90% | 58% |
| Winter Wheat | 71% | 66% |
| Spring Wheat | 89% | 84% |
| Soybeans | 74% | 29% |
As a result of the Midwestern floods, the planting levels of 2019 were the lowest on USDA record, going back to 1980. In response to the harsh conditions facing U.S. producers, the Trump administration proposed a plan to provide $16 billion in farm-aid to mitigate losses.
The May 2019 Rally of Corn Futures, Soybean Futures, and Wheat Futures
As the planting season drew to a close in late May, it became obvious to the markets that a major supply disruption was developing. With only a fraction of various crops having been planted, uncertainty began to swirl around the marketing years of 2019/20 and 2020/21. Subsequently, the futures markets experienced heavy bullish participation, which had a significant impact on corn, wheat, and soybean prices.
Due to the flood-related challenges facing crop plantings, May was a strong month for ag commodities:
| Product | Gain |
|---|---|
| Corn Futures | 15% |
| Wheat Futures | 12% |
| Soybean Futures | 2% |
Amid fears over the evolving U.S.-China trade war, investors aggressively priced potential 2020/2021 shortages into the corn, wheat, and soybean futures markets. Corn futures reached highs not seen since 2016, while the tariff-stricken soybean market rebounded to multi-month highs. Wheat futures posted large gains as well, mostly credited to a periodic bullish correlation with corn futures.
Trading the Grain and Oilseed Complex
At least in the ag commodities markets, the spring of 2019 brought both enhanced risks and opportunities. Given the nuance of the U.S.-China tariff battle, as well as various global supply-demand issues, spring 2019 illustrated just how sophisticated the futures markets really are and how various factors influence corn, wheat, and soybean prices.
For more information on all things ag, check out the resources offered by Daniels Trading. Whether you’re an active speculator looking for opportunity or a producer in search of a robust ag marketing plan, the pros at Daniels Trading have you covered.
