Better Farming - August 2016

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32 Farm News First > Better Farming August 2016
MOE'SMARKET MINUTE
Uncertainty in the markets, and weather doubts
By MAURIZIO AGOSTINO AND ABHINESH GOPAL
NOAA Outlook for July-August-September 2016
A
50
50
50
40
40
A
A
EC
A
33
60
THREE-MONTH OUTLOOK
TEMPERATURE PROBABILITY
0.5 MONTH LEAD
VALID JAS 2016
MADE 16 JUN 2016
EC MEANS EQUAL
CHANCES FOR A. N. B.
A MEANS ABOVE
N MEANS NORMAL
B MEANS BELOW
Source: NOAA
By June, global temperatures had
soared above normal for 30
straight months. According to
National Oceanic and Atmospheric
Administration (NOAA) data, this is
the longest and hottest run since
1880. Following from the recent El
Nino and unprecedented global
warming, we could get yet another
heat record-breaking year in 2016, the
third in a row. As a result, the amount
of ice that melted globally from
March to May of this year was
abnormally high.
In June, NOAA was forecasting
above-normal July temperatures in
the U.S. crop growing areas, and
near- to below-normal rainfall.
Anomalous soil moisture was expect-
ed to significantly influence July
temperatures across the region. In
early June, some parts of Iowa
reported that lawns were drying out
and soil was cracking.
In the latter half of the month,
topsoil moisture shortages became
apparent in parts of the southern and
Agricultural markets prepared for a long, hot summer.
eastern Corn Belt. Some of the most
significant stress on pastures and
summer crops was occurring across
the U.S. southwestern Corn Belt,
including a broad area centered on
northern Missouri, where hot weath-
er accompanied short-term dryness.
By mid-June Missouri farmers had
already noted moisture stress in the
corn leaves, which start to “roll” – a
defence mechanism to soak up more
moisture from the ground. Creeks
and streams were beginning to run
low by mid-June.
Summer arrived in early June. As a
precursor to a very dry month ahead,
the U.S. Southwest began feeling the
heat by mid-June as well. During the
month, some temperatures in the
United States were 20 to 25 per cent
above normal. Many records were
broken in the latter part of the month
when the highest U.S. temperature
recorded was 120 degrees Fahrenheit,
in Glendale, Arizona.
For farmers and ag prices though,
it’s been a mixed bag. In June the
bears were arguing that if
we did not see La Nina and
associated drought condi-
tions by mid-July, U.S. crop
conditions and yields would
not be affected. By the end
of July, corn passes its
critical pollination stage.
For soybeans, it’s another
story as the pollination
stage is later, with an
August crop. In fact, U.S.
Department of Agricul-
ture’s crop conditions were
so good that the risk was for
higher yields if the weather
remains non-threatening.
All we get from a delayed
La Nina could be a hard
dose of winter and snow
this season, in the Northern
United States and Canada.
Added to these weather doubts in
June were global growth uncertainties
connected to the shocking Brexit vote
in Britain and Chinese demand
concerns. It was all pointing to a
commodity price puzzle.
By the end of June, induced by
weather concerns, hedge funds hiked
their net buy (long) positions in
agricultural commodities to the
highest in more than two years. But,
this also set them up to trigger sharp
selling if the U.S. summer weather in
July and August does not materialize.
Managed money raised its net long
position to the highest since May
2014: 957,000 contracts in 13 of the
top ag commodities, according to
CFTC data. All of these factors
combined point to a significantly
over-bought technical situation and
makes the market vulnerable to a
steep sell-off. But one may never
know because, as with weather,
volatility is the new normal. BF
Maurizio "Moe" Agostino is chief commodity
strategist with Risk Management.
Abhinesh Gopal is a commodity research analyst with
Risk Management.
Risk Management is a member of the
group of companies. Visit RiskManagement.Farms.
com for more information.
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