We have many weather cross currents that lack any reliable historical analogs to go by. That suggests to us that a “seesaw” weather pattern is in the cards that will offer great price volatility for grain markets, as we oscillate from hot-dry to cooler-wetter and then back to hot-dry etc.
This past week illustrated that exact scenario where the grain markets spiked this past week on a dome of hot-dry weather-pattern forecast – only to retreat as models suggested that it would only be a shorter-term phenomenon. It would not provide the kind of weather blow to substantially impact corn and soybeans pollination and pod-setting yields. But rest assured the upcoming cooling and increased moisture is also not likely to last – and will lead to a hot-dry pattern yet again as we move into the middle of August.
That will create tremendous confusion as to the extent of any weather-related damage or lack thereof. It will offer the need to see “actual harvest results” to come clean on what the current growing season once-in-a-lifetime weather-pattern extremes will produce. There are no analogs that we could find going back to 1902 that had a similar set of weather extremes as we have seen in 2019. That means we are truly going blind as to what the final outcome will be for yields and for harvested acres.
While there is wild speculation by many that claim they know yields will be this or harvested acres will be that, the truth of the matter is they have no idea and neither do we. When faced with a scenario where we are moving into unchartered waters one should remain open-minded to any and all scenarios – until such time that pieces of evidence emerge to narrow the scope of possibilities. While we appreciate the challenges that weather has provided U.S. crops this year, with so much of the growing season still in front of us it would be prudent to not make any grand conclusions just yet about a bullish or bearish outcome. We feel the odds favor the end result being bullish, but that recognition may still be many months from now. It will require producers and traders to be patient and/or position for a longer-term horizon.
Our overall thesis is that we have entered a warmer and drier pattern from the cooler and wetter pattern that dominated U.S. weather through the early part of July. The warmer drier pattern is welcomed to move the crop-maturation cycle along. But it must also provide timely moisture to prevent from seeing what we call “flash droughts” because immature and shallow root structures can quickly lose access to topsoil moisture and be incapable of accessing subsoil moisture. We feel the insiders – what we call “Smart Money” – would be the most qualified to correctly assess the potential for yields and harvested acres against demand.
We remain fond of the 1993 weather scenario as the only analog that has anything remotely close to the kind of weather extremes we have seen in 2019. The year 1993 had corn prices rally into late June, top out, correct into August – and then explode to new rally highs once it became clear that production was not going to deliver in early September. While 2019 thus far has followed that corn-price analog quite well, it doesn’t mean it must continue to follow it. Our best guess is that one should be looking for a low and bullish turning point for corn prices sometime in early September.
The weather looks to improve into month end and the beginning of August. That should keep the grain markets in-check and defensive for the time being. A bit longer-term our Solar Cycle work suggests a warm finish to the crop season in the United States, but an early start to winter. The timing of that transition could offer the potential for a legitimate frost scare for late-developing U.S. crops. Keep that idea tucked away as we refine and tighten this early start to the winter thesis in the days and weeks ahead. But if one was to think of an explosive weather market-moving event, frost potential would certainly be one of them.