Markets

Frayne Olson gets ready to talk at a past field day.

Market volatility, both up and down, is the norm in the June to August timeframe in the U.S., according to Frayne Olson, NDSU crop economist and marketing specialist.

“I want to put context behind what is currently happening in the market,” Olson said in the NDSU Ag Market Outlook Webinar Series. “A lot of the market volatility is supply-driven, with concerns about the weather and the size of the crop.”

The U.S. Drought Monitor, released June 2, shows some abnormally dry areas in central and northeastern North Dakota, and a large swath of the western region of the state classified as “D1” – moderate drought.

Olson talked about a large contrast going on in North Dakota, depending on which region of the state producers lived in.

“Producers in some areas this spring, as they were seeding, were concerned about dry conditions, and whether they would have enough moisture to get their seed out of the ground – let alone get a crop established,” Olson said.

In eastern North Dakota, it is a different story.

“In some areas in eastern North Dakota, we have producers talking about a large portion of their farm going to be prevented plant acres. Some counties may have 30-40 percent of acreage in prevented plant, so we really have this dichotomy going on,” he said.

Historically, we’ve seen “big spikes” in prevented plant acreage during very wet years.

Averaged across years, the typical amount of prevented plant acres is about 1 million acres a year in North Dakota. That does not mean every year has 1 million acres in prevented plant, but that is the average number.

The Prospective Plantings report from USDA in March already “implied” some 800,000 acres would not be planted this year. Since the typical average is about 1 million acres in prevented plant, that is not an unusual number.

“I am not saying it is not difficult or downplaying the importance of acres in prevented plant, but in the big picture, markets are looking at around 1-1.1 million acres in North Dakota,” Olson said.

Producers wonder why markets don’t seem to be reacting to prevented plant acres. While local markets will react, the futures market does not unless certain large-producing states have production difficulties.

U.S. corn production is heavily concentrated in the western Corn Belt. Those states are Illinois, Iowa, Nebraska and Minnesota, and they represent 55 percent of all corn bushels in U.S.

“The futures market for corn would put a risk premium back in the futures market if there were production problems in one of those four states,” Olson said.

Historically, Iowa has produced the most bushels of corn.

For soybeans, the main production is more spread out in all directions than the corn area is.

“It is not that the soybean futures market won’t respond to production problems here. But Illinois, Iowa, and Minnesota are the top three producing states, producing some 20-23 percent of all soybeans in U.S.,” he said.

North Dakota is a top soybean-producing state, but is part of the second tier.

Wheat is a different scenario, spread out over many states, but North Dakota and Kansas produce the most bushels.

Montana is unique because it is a large producer of both spring and winter wheat.

“When we think of weather conditions and what might cause a rally in the wheat market, sometimes it is offset by the different conditions in North Dakota, such as a flood, versus Texas, such as a drought, and that can cancel each other out,” he said.

Winter wheat harvest has already started down south, and the geographic production area is spread out in the U.S.

What influences the spring wheat market? North Dakota is the largest in the nation, followed by Montana and Minnesota.

“What happens in North Dakota has a huge impact on the spring wheat market, especially when it comes to the potential premium that spring wheat has over winter wheat,” he said. “That premium spread is heavily influenced by the kind of production we have in North Dakota.”

North Dakota is “critically important” when it comes to spring wheat, and it is “relatively important” when it comes to the soybean market. However, the state is also considered “relatively small” in importance when it comes to the corn markets.

“What happens in our backyard may or may not have an influence in the markets,” Olson said.

Nationally, the USDA Crop Explorer looks at subsoil moisture. Subsoil moisture is in “pretty good shape” in the major corn and soybean producing states, including eastern Nebraska. In some cases, it is in excess.

The root zone (surface) map shows good soil moisture in the soybean and corn producing top states, although the topsoil may be getting dry due to being tilled.

“It will take some continued dryness and heat to put a major lift, or at least a weather premium into the corn and soybean markets,” Olson concluded.