It seems rather early in the Northern Hemisphere growing season to already have a region of the world dominating the global commodity trade, but that has been the case over the past few weeks. Wheat has been one of the more popular trading contracts in Chicago because of concern over dryness that dominated April from one end of Europe to the other with some extension of the dryness into Kazakhstan. Corn also has grabbed a few headlines, but weather only has been a key factor to Safrinha corn in Brazil, where dryness has reached a peak just ahead of reproduction.
The European continent has had problems with the 2020 wheat crop going back to last autumn when the first seed was pushed into the ground. Many areas in Europe were drier biased during the planting season, and that led to some delayed planting and poor emergence conditions. France was one of the leading areas facing dryness but managed to see timely rainfall at the end of the planting season to give the crop a better environment for planting and establishment. That was not the case for the Balkan Countries of southeastern Europe or Ukraine, where dryness was an ongoing battle during the summer of 2019 and the autumn turned out to not be any better. Dryness in the Balkan Countries never was adequately relieved before winter crops turned dormant, leaving them poorly established when freezing temperatures started to occur routinely.
Ukraine weather was not much better, and Russia’s southern region and western Kazakhstan were in worse shape when their crops turned dormant. Most of these areas experienced some increase in winter precipitation that had soil moisture rated more favorably when greening came along in April. Mild to cool temperatures during the month conserved soil moisture through low evaporation rates, but precipitation was quite limited. A few brief periods of warmer temperatures occurred to induce faster drying rates, which resulted in firmer topsoil and greater worry over 2020 crop development. Meteorologists were not helping things much by predicting below-average precipitation during the spring, and it was not long before the market was full of concern about production potentials.
The concern was not just confined to the Black Sea region but extended all the way back to northern France. A huge part of northern and eastern Europe reported well-below-average precipitation during April with some of the dryness beginning in March. That dryness coupled with worry over Black Sea crop development potential made wheat futures trade one of the few bright spots in the commodity market as the nation swirled in the COVID-19 pandemic storm.
Computer forecast models were promising an opportunity for improved rainfall across most of Europe and the western Commonwealth of Independent States in the last days of April and first week to 10 days in May. The advertised change promised to bring relief to the dryness scenario in both Europe and the western CIS, squelching the market excitement over possible shortages of grain — at least for a while. World Weather, Inc. is not convinced that the relief coming will be sufficient to carry crops for very long. As soon as seasonal warming kicks in, there could be some quick drying once again.
The area most favored for dryness this summer is going to be northeastern Europe, including areas from the Baltic Plain through northwestern Russia. There may be some dryness in surrounding areas, but it may not be the Black Sea region or southeastern Europe as feared earlier this spring.
US and Brazil outlook
In the meantime, wheat in the US central and southwestern Plains has been trending drier biased, too, and recent excessive heat has occurred to exacerbate dryness just ahead of reproduction. That could cut into some of the US production, but without Russia and Europe having trouble, the US issue may not be big enough to perpetuate the futures price appreciation of wheat. And then, of course there is India and China — both of which are expecting very large wheat crops. Australia and Canada cannot be left out of the mix with both countries expecting much better production this year.
The weather fundamentals for wheat are not looking as supportive for prices as they did at the beginning of this writing and the same may be true for corn. Weather conditions in the United States this spring were expected to be wetter biased, but not as wet as last year, but planting of corn was expected to be slow because of the wet bias. That concern was expected to comingle with fears of Safrinha corn problems in Brazil.
Late planting in Brazil this year was feared to push reproduction of Safrinha corn into the heart of the dry season, leading to lower production at the same time the US crop was planted late. These expectations were moving along on a correct path to support corn futures prices until the COVID-19 pandemic and the global economic slowdown. The fall in oil demand around the world dropped the need for ethanol and that reduced the need for corn. Suddenly the demand for corn was reduced and that was after US producers decided to plan a huge corn crop. The large US crop was of little concern for a while because it was thought that the crop would be planted late enough that it would not yield as well as it should. The latest USDA crop progress statistics showed that US planting has had its problems in some areas, but the crop was getting planted faster than expected from a national perspective.
To make matters worse, Brazil’s second season corn went through a large part of April with below average precipitation, resulting in declining soil moisture prior to reproduction. The environment was looking somewhat threatening to reproduction because top and subsoil moisture was being depleted ahead of reproduction.
Just when it looked like corn could be faced with some losses in Brazil, a massive cold airmass was suddenly being advertised for Argentina in the first days of May. That cold airmass was expected to push a strong cold front into second-season corn production areas just in time to generate some badly needed rain in the driest corn production areas. It remains to be seen how significant that rain will be, but relief from dryness is expected. That, along with the US crop planting progress and huge acreage expected in the United States, large crops in South America and low ethanol demand, leaves potential corn price appreciation about as good as wheat. That does not bode well for any big turnaround in commodity futures prices anytime soon — at least not from a weather fundamental perspective.
Drew Lerner is senior agricultural meteorologist with World Weather, Inc. He may be reached at firstname.lastname@example.org. World Weather, Inc. forecasts and comments pertaining to present, past and future weather conditions included in this report constitute the corporation’s judgment as of the date of this report and are subject to change without notice.
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