Could the High Heat Cause Corn Prices to Repeat 1988 and 2012 Levels?

Even with the Federal Reserve raising interest rates, the high heat seemed to be the focus of the markets the second half of the week. Two veteran market analysts say if this heat continues, and drought becomes an even larger concern, commodities could see a dramatic run-up in prices.

According to Pro Farmer’s Jim Wiesemeyer, the U.S. saw more than 1,850 heat records broken just in the past seven days. A ridge of high pressure is the what’s driving the heat. USDA meteorologist Brad Rippey says while the ridge of high pressure is parked over the country, it has been shape shifting the past few days.  

“This year it does appear we have a rather intense ridge of high pressure,” says Rippey.

While the high heat was potentially impacting grain production farther south in areas where the corn was silking, Rippey says it will be key to watch where that ridge sits a month from now, along with its level of intensity.  

“As you remember, 50% of U.S. corn was planted in a two-week period in May, and almost two-thirds of the corn was planted in a three-week period. So a lot of that corn went in all at once, especially in the Midwest,” he says. “About a month from now we're going to be looking at where that high is parked. Is it going to affect production? All of that depends on where that strong ridge of high pressure is parked in early to late July when all that corn will be moving through reproduction.”


Read More: How Will High Temperatures Impact Crop Conditions and the Grain Markets?



Even with the majority of the U.S. corn crop still weeks away from key reproduction phase, the markets seemed to be watching the weather closely. Mark Gold of StoneX Group says that was the major driver of Thursday’s price action.

“The heat is the overwhelming concern out here,” says Gold. “We saw that on Thursday, with prices going straight up . We've got along weekend coming up, so with the heat in the forecast you have two weeks of hot and dry weather in a lot of the Southern Plains and across the Midwest. Who wants to sell it here? It would take a real hard sell-off in the Dow, something around 1,000 points, in order for that to have a major effect right now.”

Bob Utterback of Utterback Marketing prides himself in being a bear, but with the heat and tight stocks scenario, he also thinks corn, soybeans and wheat could see higher highs, even from the price levels farmers see today.

“At the end of the month, if you have a report that reflects some deterioration of acres, and now this heat is going to lower the yield down to 177 [bu. per acre] and you could even go down a little lower. In the next two to three weeks we could see a quite a violent upswing like you saw on 1988 and 2012. I think we're going to the moon, and that's the opportunity as a seller when you want to start really thinking about how are you going to start providing some protection for the long-term.”

Prices are already at historic levels, so realistically, how much higher could commodities go? Gold says that’s anybody’s guess.

“When you look at inflation, you have gas prices at $7 a gallon here in Chicago. So, how high is high? I never want to play that game. But certainly we could put $2 to $3 under the beans and $1 or $2 under the corn without too much trouble,” says Gold. “We've never had this kind of a long weekend in the middle of June. It's kind of like a Fourth of July holiday. That's going to be watched very carefully.”

Current crop condition ratings show as of last Sunday, the corn crop was rated 72% good to excellent, down a point from the previous week. And while some analysts argue crop condition ratings aren’t a big market move, Utterback thinks anything that shows a reduction in the supply side will be of focus this year.

“You can't be short the board,” says Utterback. “You have to be long a put or short cash. It's almost like a loan to buy a car. So right now as a seller, you just got to keep your hands out of the market and basically be cautious, but be ready to move because when it does turn, it is going to be a vicious bear market much like the 1983 to 1985 time period.”

 

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