July 25, 2021

Commodity Insight: Whims and ways of Mother Nature

The warmest decade on record was in the years 2011 to 2020. The warmest six years have all been since 2015 with 2016, 2019 and 2020 being the top three for hot and dry. And the hottest June for the North American continent was the June that just ended. Such warm temperatures are being blamed by most scientific sources on climate change.

The western United States has been experiencing drought-like conditions for the past 20 years. Several sources argue that the past two decades in the American West have been the driest or second driest in the past 1,200 years.

And the Pacific Northwest, known for its cool and wet climate, was just blasted with temperatures as high as 116 degrees in Portland, topping the old record by 9 degrees. In Lytton, Canada, new record highs for temperatures were set three days in a row and topped out at 121 degrees.

The wild card for grain prices is Mother Nature, the weather. It has always been that way and will always be that way.

Understand, the U.S. corn crop is made or broken in July. The soybean crop is made or broken in August.

The U.S. growing season still has one to two months left to go before it will be known with certainty the size of this year’s crops. But with ending supplies of corn and soybeans razor thin, there can be no hiccup, no shortfall with production or grain prices will soar higher in the blink of an eye.

The problem with Mother Nature is that she is fickle. A few weeks ago, for instance, Brazil was hit with a hard frost that affected its corn crop to such a degree it will drastically reduce corn exports.

With Brazil slowing exports, it simply means the U.S. corn market and prices will benefit. A number of experts are predicting that Brazil may have to import corn as a result of the unexpected hard freeze brought forth by Mother Nature.

In the United States, a high pressure ridge, or Dome of Doom, has been centered over the western states with limited rainfall and above-normal temperatures seen for weeks on end.

However, the western United States is not the Midwest Grain Belt. Historically, when a Dome of Doom surfaces in the Grain Belt, it can lead to a sharp reduction in yields for the major crops.

But this week, and for the first time in years, several of my most reliable weather services are predicting that a Dome of Doom is about to form over the Midwest Grain Belt.

Basically, my weather sources argue that the severe drought across Minnesota, the U.S. Plains and the Canadian Prairies is shifting east over Colorado and into the Grain Belt.

If such a scenario unfolds as forecast, it means, in the very heart of the growing season for corn and soybeans, the weather is going to turn threatening.

History shows clearly that a Dome of Doom over the Grain Belt in the growing months of July and August can spark sharply higher prices in no time at all.

A week ago, the U.S. Department of Agriculture released quarterly grain stocks and new crop acreage estimates. The data was wildly bullish and grain prices rose sharply in value for a few days.

Soybean prices rose $1.20 a bushel in two trading sessions while corn prices rallied 64 cents. However, after a fast and furious 48-hour rally, both markets rolled over and in a few days gave back all they gained and then some.

The grain complex shrugged the “wildly bullish” report off as if it did not matter. And one of the oldest sayings in a marketplace is this: “Markets that go down on good news are markets that want to go down.”

The grain complex and prices have been roller-coaster-like since January. Each month this year in face of bullish news prices have skyrocketed higher only to have the rallies die a quick death.

This week, the same fate was seen with grain prices totally ignoring the fact that supplies are razor thin and new crop acreage less than expected.

But the big difference here and now is the prediction that a Dome of Doom is about to settle across the Grain Belt. It has been years since such a threatening weather pattern has emerged that could impact grain prices.

All I know for certain about the weather is that no one can say with certainty what Mother Nature has up her sleeve. She is notorious for being fickle and her whims and ways never cease to amaze me.

It will be interesting to see exactly what unfolds here in the key growing months of July and August. Very interesting, indeed.

If I can be of help, drop me a line at commodityinsite1@gmail.com.