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Grain Markets Edge Higher Led By Corn As 'Bomb Cyclone', Wet/Blizzard Conditions In Plains And Midwest Offset Large Supplies

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Includes: CORN, SOYB, WEAT
by: Andrei Evbuoma
Summary

"Bomb Cyclone" set to impact the Plains and Midwest with rain, wind, thunderstorms and heavy snow.

Blizzard conditions expected across the northwestern corn, soybean belts and spring wheat belt on Wednesday and Thursday.

Grain prices climb higher as storminess and wet conditions offset large supply.

Investment Thesis

Weather will provide near-term upside for the grain markets, especially corn. However, upside will be tempered by other bearish variables, including the trade deal and strong supply.

Significant winter storm with blizzard conditions followed by unseasonably cooler weather to impact the Plains, Midwest

A vigorous, rapidly intensifying storm system is set to hit the Plains and Midwest hard with a combination of heavy rainfall, thunderstorms, wind and heavy snow/blizzard conditions Wednesday through Friday. On the cold side of the storm, winter storm/blizzard watches and warnings have been hoisted. This includes Colorado, Wyoming, Kansas, Nebraska, South Dakota, North Dakota, Minnesota, Wisconsin and Upper Michigan. The epicenter of this winter storm will stretch from the eastern Rockies through the northern Plains. This includes northeast Colorado, southeast Wyoming, northwest Kansas, central/western Nebraska, much of South Dakota and western Minnesota, where a couple feet of snow is expected with high winds (blizzard conditions). It's worth noting that this is the same area that's coming out of a cold, harsh, wet/snowy winter. This includes the northwestern portions of the corn/soybean belt and parts of the spring wheat belt. In the warm sector of this powerful storm system will be heavy rainfall, high winds and thunderstorms (some of which can be severe). In fact, the atmospheric dynamics are in place severe thunderstorms this afternoon across northern Kansas and south/southeastern Nebraska. On Thursday, the threat shifts east to Illinois/Indiana. Figure 1 below is an infrared satellite image of this developing powerhouse storm system with frontal boundaries superimposed on top of it.

(Source: AWIPS)

This will be the first of a series of storm systems that will have impacts across the central and southern U.S. The next storm system is set to impact the southern U.S., including the Delta and the central/eastern corn belt, this weekend with rain and thunderstorms (including severe thunderstorms). Another system is forecast to eject out of the Rockies into the Plains by the middle of next week.

In addition to this active weather pattern will be the continuation of cooler weather over the central U.S. In all, this continues to create great pressure on farmers who are waiting for the chance for: 1) the weather pattern to improve so that fields can improve for planting, and 2) to be able to get out and start planting in fields that are in better shape. Over the next couple of weeks, there will be more closed days than open days for field work with this active weather pattern. Transportation/logistic issues continue as well with rail, road and river networks being shut down/disrupted due to the ongoing flooding compounded with this continued active (wet) weather pattern. As mentioned before, weather continues to be the one area of support for crops due to potential supply and crop condition challenges. However, corn and wheat old crop carryout is strong. Additionally, there don't appear to be any concerns of global shortage in these products. This, combined with increased global export competition and a lack of details regarding the U.S. China trade talks, keeps near-term upside from weather limited and overall has a bearish sentiment.

U.S. May corn futures were up this morning, 0.59% to $3.6212. U.S. May soybean futures were trading higher 0.32% to $9.0188, and U.S. wheat was up 0.52% to 4.6038. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) was up 0.23% ($0.04) to $15.41, the Teucrium Soybean Fund (SOYB) up 0.11% ($0.02) to $16.08 and the Teucrium Wheat Fund (WEAT) up 0.19% ($0.01) to $5.33. Figure 2 below is a chart of the front-month May futures contract for corn price trend over the past 7 days.

Source: Investing.com

Figure 3 below is a chart of the front-month May futures contract for soybeans price trend over the past 7 days.

(Source: Investing.com)

Figure 4 below is a chart of the front-month May futures contract for wheat price trend over the past 7 days.

(Source: Investing.com)

May Chicago Soft Red Winter Wheat (SRW) futures were up 1.2 cents to $4.606, with May Kansas City Hard Red Winter Wheat (HRW) futures up 1.6 cents to $4.292, resulting in a 32-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) May contract was up $0.96 to $5.326.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.