By G C Mays,
Declining crop conditions due to persistent drought continue to threaten this years corn crop. The percentage of the corn crop rated good to excellent was 56% through the week ending June 24th. This was 7 percent lower than the previous week and 21 percent less than the 77 percent good to excellent rating reported on May 20th. In fact, corn crop conditions are moving opposite of the direction they moved a year ago.
(click to enlarge)Source: The Mays Report
14 percent of the corn crop rated very poor to poor for the week ended June 24th. This is 5 percent higher than a year ago and 11 percentage points higher than May 20th.
Despite spring planting being over fertilizer stocks have moved higher since June 19th when I published, "Despite Higher Corn Ending Stocks, Persistent Drought Could Send Prices Soaring". With corn being the market's current focus, the stocks of pure nitrogen producers like Rentek Nitrogen Partners (RNF), CVR Partners (UAN) as well as CF Industries (CF) and its wholly owned subsidiary Terra Nitrogen (TNH) are all up double digits between June 19th and early trading on June 26th.
(click to enlarge)Source: Google Finance
Mosaic (MOS) and Potash Corp (POT) are also up roughly 6.9 and 9.4 percent respectively, over the same period. However, these stocks are merely following the leaders as potash sales, international sales in particular remain soft. Despite this, these stocks will continue to move with the group.
Soybeans have fared no better than corn with the amount of the crop rated good to excellent at 53 percent, down from 65 percent a year ago. 15 percent of the soybean crop rated very poor to poor versus only 8 percent a year ago. However, the soybean pollination period is a little further down the road than corn.
The winter wheat crop is much improved over last year with 54 percent of the crop rated good to excellent verses only 35 percent a year ago. Only 17 percent of the crop rated very poor to poor versus a whopping 42 percent last summer. The harvest is also ahead of schedule with 59 percent the crop in the bins versus only 27 percent last year.
In contrast to corn and soybeans, the spring wheat crop is faring very well with 77 percent of the crop rated good to excellent verses 69 percent a year ago and 57 percent headed, which is more than 3 times the 5 year average of 18 percent. "Heading" occurs when the wheat heads start developing on top of the plants.
With spring planting over and planting in South America several months off, this is a weather generated stock and crop futures rally. Additionally, neither Rentek Nitrogen Partners nor CVR Partners have operations outside of the US. It's hard to say how long the rally will last or how high prices could rise. I would consider this a trade. Using stops is advisable as weather can change on a dime.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.