The National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center has released the 90-day temperature and precipitation forecast. The good news is that Oklahoma and northern parts of Texas, including a small portion of the Texas panhandle, are predicted to receive average precipitation.
The bad news is that all of Oklahoma and Texas and the southwestern half of Kansas are predicted to have above average temperatures. Given that we’re already mostly in Extreme drought conditions, this implies that April, May, and June are expected to be relatively warm and probably windy.
The 90-day drought outlook indicates persistent drought conditions south of a line from about the southeastern corner of Oklahoma through the northeastern corner of the Texas panhandle and up through near the southeastern corner of Montana. In the hard red winter (HRW) wheat area north of this line, the forecast is for “drought ongoing, some improvement.”
The forecast for most of the soft red (SRW) winter wheat area is for average to above average precipitation and slightly above average temperatures. With a 16 percent increase in SRW wheat planted acres, this forecast indicates above average SRW wheat production.
A record or near record amount of HRW wheat entered dormancy in poor to very poor growing condition. During February and March, HRW wheat conditions have improved only slightly. The 90-day weather forecast is not good for HRW wheat yield potential. The forecast should be positive for HRW wheat harvest prices.
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Relatively good growing conditions for SRW wheat and predicted good planting conditions for spring wheat may result in higher production and lower wheat prices. Lower spring wheat and soft red winter wheat prices would have a negative impact on HRW wheat prices.
Another major HRW wheat price factor is corn prices. Reports are that wheat (mostly SRW wheat) is being used for ethanol production, and both SRW and HRW wheat are being substituted for corn in feed rations. Wheat prices, especially HRW wheat prices, must be sufficiently above corn prices to limit the amount of wheat used in feed.
Corn ending stocks for the 2012/13 marketing year are projected to be 632 million bushels. The corn stocks-to-use ration (ending stocks divided by annual use) is the second lowest since 1960 and the lowest since 1995. With tight corn stocks, weather will be a major corn price factor.
The U.S. drought monitor shows relatively good soil moisture for most of the Corn Belt. Extreme drought conditions are indicated in Nebraska, and moderate to severe drought conditions are indicated in Iowa.
The 90-day temperature forecast for most of the corn production area is for a 33 percent to 50 percent chance of above average temperatures. Above average moisture is predicted for Missouri, Indiana, Ohio, and Iowa. Average precipitation is predicted for Kansas and Nebraska.
With average corn yields, corn production is expected to result in 2013/14 corn marketing year ending stocks increasing from 632 million bushels to about 2.0 billion bushels. The price impact of increased corn stocks is reflected by the Chicago Board of Trade May corn contract price of $7.33 compared to a December corn contract price of $5.68.
Corn prices are dependent on corn production. Wheat prices are dependent on wheat production and corn production. Both wheat and corn production are dependent on the weather.
Weather markets tend to result in volatile prices. The next four to five months should not be an exception.
At this writing, the Kansas City Board of Trade (KCBT) July wheat contract price is $7.65. The weather will determine if, in June, the KCBT July wheat contract price is $8.75 or $6.50. Only time and the weather will tell.