The highly anticipated annual planting intentions report is about to be released, and with it, pivotal information regarding some of the hottest commodities traded on the market today. How are the markets going to move as a result of the farmers’ crop trends? How is the current, and more importantly, future U.S. meteorological patterns going to affect the planting and harvesting of the intended crops? Should farmers delay their plantings for a more beneficial growing season?
The latest mid-month discussion from the International Research Institute (IRI) for Climate and Society indicates that there is a 90% chance, according to both dynamical and statistical models, that El-Niño conditions will continue through March, April, and May, which are prime planting time frames for key commodities such as corn, cotton, and wheat.
The latest ENSO Diagnostic Discussion, released monthly by the Climate Prediction Center/National Center for Environmental Production/National Weather Service (CPC/NCEP/NWS), also indicate that El-Niño impacts will gradually fade throughout the remainder of the U.S. Spring season and shift into ENSO neutral conditions, particularly by the beginning of summer. Some of the effects that will continue to be observed include the following:
- Higher than average precipitation in the Southwest
- Higher than average precipitation in the South-central States
- Higher than average precipitation in Florida
- Below average precipitation in the Pacific Northwest
- Below average Precipitation in the Great Lakes region
- Above average temperatures across the northern U.S.
- Below average temperatures across the south-central and southeastern states
The National Agricultural Statistics Service (NASS) and United States Department of Agriculture (USDA) released a report in 1997 titled, “The Usual Planting and Harvesting Dates for U.S. Field Crops” which specify how the states compare to each other in regards to commodity production, as well as most active planting and harvesting dates.
Cotton, which is grown on the 36th degree parallel, can be found growing all the way from Northern Florida to the Carolinas, and as far west as California. Texas, one of the leading producers of U.S. cotton, depends on dry tropical to subtropical climates for a productive cotton crop. Initial soil conditions necessitate ample moisture. Since cotton uptakes an abundance of soil nutrients and moisture, careful crop rotation planning can allow for year round use of field acreage. The forecasted increase in precipitation in most of the cotton growing regions is good news to farms that tend to depend on Mother Nature to assist in their crop needs. Colder than average temperatures across the Southern central and southeastern states could be a problem as planting season is nearing halfway over. Most of the U.S. cotton growing regions have seen a long winter this year so far, which will probably result in a decreased cotton crop output or possible further delays in planting in the more northern cotton growing states such as Tennessee.
Corn, found primarily grown in Midwest, especially in Iowa and Illinois, consists of about 30% of the world production. Large amounts of water, either through crop irrigation, or natural rain is needed for fruitful crops. Predicted wetter conditions in the southeast and western portions of the Midwest will aid farmers this upcoming season. Precipitation amounts will be coupled with ideal temperature conditions which should yield on time productive corn crops this growing season.
Kansas, a key player in the U.S. winter wheat supply, won’t be addressing planting conditions until its growing season which runs between mid-august through mid-September. North Dakota, which is said to produce more than half of the U.S. Spring Wheat supply, is forecasted to receive drier and warmer conditions this upcoming growing season which should be good news for farmers. Wheat is sensitive and has little resistance to temperatures outside of its normal growing range. A late start in spring growth would be ideal as there would be a less likelihood of a late “frost” bringing destruction to already-growing crops.
The expectations for the USDA’s planting intentions report next week are as follows:
Wheat: Projected Acres 53.376 Million / Average estimate 51.9-55.0 / Last Year 59.133 Million
Cotton: Projected Acres 10.09 Million/ Average estimate 9.50-11.0 Million / Last Year 9.15 Million
Corn: Projected Acres 89.189 Million/ Average estimate 87.0-91.0 Million / Last Year 86.5 Million
Our current positions for clients in these markets are as follows:
Wheat: We have no outright positions but have positioned some clients long December KCBOT wheat against a short in December CBOT wheat expecting KCBOT to be at a premium to CBOT. This should work as long as the trend remains down.
Cotton: Clients are advised to have short exposure in cotton as we feel prices should come under pressure eventually taking prices back to the mid 60’s on the December contract. Analyzing the daily chart we see stiff resistance just above 75 cents.
Corn: December corn has been range bound for the better part of the last month wondering between $3.85 and $4.15; we sit at the lower end of that range as of this post. We are advising clients to have long exposure via July call options and December futures anticipating a trade up to $4.50 in the coming months.
While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
By: Jordanna Sheermohamed, M.S Meteorology Weather and Climate Consultant for MB Wealth Corp. and Matthew Bradbard