Weather impact on grain market dynamics

April 27, 2021
Joe Lardy, a CHS market research analyst, discusses the effect weather conditions in the U.S. and Brazil is having on planting progress and the potential impact on grain markets. 

Poor weather and tight global grain supplies have created one of the most dynamic markets in recent seasons. Planting conditions in the United States have been a mixed bag, while Brazil continues to have unusually dry weather. What’s ahead for U.S. grain exports depends on demand fluctuations, according to Joe Lardy, a CHS market research analyst.

“There weren’t really any early season weather challenges, which encouraged farmers’ hopes for an early planting season,” says Lardy. “Then temperatures cooled in late March and throughout most of April, which has slowed the pace of planting. Government planting progress numbers show corn planting is right at the five-year average, but I think farmers were really hoping they’d be further along.”

The latest data, he adds, put soil temperatures only in the mid-30s from I-80 north. Lardy is also monitoring North Dakota and South Dakota conditions, which continue to be desperate for rain.

“We know the American farmer can plant pretty aggressively when temperatures warm up. I expect things to be slow now, but in a couple of weeks, I believe we’ll see big jumps in planting progress.”

Rainfall worries in Brazil

Lack of rainfall in Brazil has delayed planting for the second corn crop. To maintain good production, the country’s rainy season, where rains can come daily, needs to last through May, says Lardy.

“In a normal weather pattern, Brazil’s rainy season would end sometime in late April or maybe the beginning of May,” says Lardy. “They recently had a scheduled rain event that was disappointingly low and I think that’s really starting to set the tone, with many people believing that Brazil’s rainy season is coming to an end.”

He mentions the key Brazilian growing area of Mato Grosso, where there is a municipality that received less than 2 inches of rain more than midway through April. The area’s normal April rainfall is 7 to 9 inches.

“Even if the area does get rain, it’s probably only going to be half of the rainfall that’s expected,” says Lardy. “And with the Brazilian corn crop two to four weeks behind normal, an early or even a normal end to the rainy season could substantially hurt production there.”

In fact, most analysts have dropped their estimates for Brazil corn production by a few million tons. With increased talk about production reductions, Brazil could be looking at a production cut of 10 million tons or more, Lardy notes.

High demand for grain

“Basis levels are rising across the country and they have to be,” says Lardy. “Markets need to do a lot of work to get grain to move. In many places, the price that actually gets paid is well above the posted bid. And even though we’ve had a nice rally in futures prices — with corn comfortably above $6 per bushel and beans at about $15per bushel —physical movement has been very slow. Producers are not reacting to this price rally the way they maybe should be.”

The bad weather in Brazil has raised justifiable concerns, which is causing additional demand for U.S. grain exports, says Lardy. “We paint a bullish picture of demand being high,” he says, “but we need to be somewhat cautious and always alert for things that could temper that demand.”

One of those things could be new guidelines issued by China recommending cutting corn and soybean meal use in hog and poultry feed. “We know China is short on corn as evidenced by the huge purchases they have already made from the United States,” says Lardy, “but if the Chinese government mandates major reductions to future feed rations, that could reduce future U.S. exports. That’s something we’ll be watching very closely.”