ODA Market Highlights - 14th May 2019

Traders start to unwind their massive record short positions.

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Following on from Friday’s keenly watched USDA monthly market report, another key US report was released yesterday; the NASS (USDA) Crop progress and conditions report. Of most interest was how much of the US corn crop has been planted, since heavy earlier rainfall had already put plantings 3 weeks or so behind schedule. This is the world’s largest grain crop, and as such, planting delays that lead to yield reductions need to be monitored closely.

The report showed 30% of the crop now in the ground. This compares to last week, at 23%, last year (which was also a delayed planting season) at 59% and the five-year average at 66%. Clearly then, little progress was made last week. Looking ahead, there is a modest window of drier conditions for farmers to play catch-up, but thereafter rains return and should limit progress further.

Chicago traders will increasingly look to this report in the next few weeks, with three key questions: If farmers cannot sow the crop, how much land will be put into later-sown soybeans instead?, how much unsown corn acreage will farmers put into the Government’s  subsidised crop insurance programme and lastly, sub-optimal planting conditions will likely lead to a reduction in yields ahead, impacting overall production volumes.

Markets took the report as a very bullish indicator and have started to unwind their massive record short positions. If this develops into a weather market, where traders add a risk premium to the market, any US price strength is likely to be felt across all parts of the globe. We await a reaction in the MATIF and LIFFE corn and wheat markets.