Rain makes grain, and there will be healthy amounts of rain in the U.S. Midwest this week that could give a bearish tone to Chicago Board of Trade wheat and new-crop corn futures.
In addition, farmers are expected to have made significant progress seeding their corn crop -- which is taking place at a record pace due to unseasonably mild weather -- despite a spell of frost last week. Trade guesses were as high as 20 percent of the crop being planted as of Sunday.
The winter wheat crop is also benefiting from the weather, with condition ratings for the crop in Kansas, the top winter wheat state, continuing to improve after getting off to a shaky start with being planted under drought conditions.
The U.S. Department of Agriculture will issue its weekly report on U.S. planting progress on Monday afternoon after the CBOT is closed for business. In its last update, it said 7 percent of the corn crop had been planted.
The department will also update the condition ratings of the winter wheat crop and spring wheat plantings.
If the favorable weather conditions hold, farmers could well harvest a record corn crop this fall that would help replenish ending stocks in the United States that are forecast to be the tightest in 16 years this summer.
But any turn in the weather, especially during July when the corn crop pollinates and yields are determined, could rally prices and stoke food inflation, especially if China, the world's second largest consumer of the grain, imports heavily.
Grains analyst Dale Durchholz of AgriVisor in Bloomington, Illinois, said according to an index developed in-house, the current condition of the winter wheat crop was ranking among the six best crops in the United States over the past 20 years.
"Wheat could be a major drag on corn. This year's wheat crop looks really good and the forecasts are not showing any real cold snaps for roughly the next 10 days," he said.
CBOT wheat futures fell for the second straight week last week, losing nearly 6 percent over that period.
Increasing amounts of wheat are being used as feed in the United States due to relatively higher prices for corn. That prompted the USDA to maintain its U.S. corn ending stocks this summer at 801 million bushels despite indications of strong feed and residual use in its March 30 quarterly stocks report.
Durchholz said the condition ratings of the wheat crop in Kansas and Oklahoma have consistently been improving, increasing prospects for a solid harvest this summer.
He said the AgriVisor crop condition index -- which uses USDA data -- was showing 362 compared with 291 last year.
"There have only been five years when the crop was in better condition than this year's."
PRESSURE ON WHEAT AND NEW-CROP CORN
New-crop CBOT corn futures could be pressured by a big advance in plantings last week coupled with rains this week that could replenish moisture in the Corn Belt.
"Every drop of rain in northwest Iowa and southwest Minnesota will be welcome," said agronomist Michael Cordonnier in Hinsdale, Illinois, who runs Soybean and Corn Advisor. "That area has been moderately or abnormally dry."
He expects USDA to report on Monday that 18 to 22 percent of the corn crop had been planted, adding that he would not be surprised to see that 30 percent had been planted in Illinois, nearly double the current 17 percent USDA estimate.
Cordonnier also said that he was surprised that the soybean crop in drought-hit South America was continuing to shrink.
"I think it would get smaller but two weeks later it's going down some more," said Cordonnier, whose estimates of South American crops are closely followed by grain traders.
"I'll be adjusting my number next week," he said, adding that he would reveal his estimates to clients first.
USDA has reduced its estimate of soybean production in Brazil by 12 percent and in Argentina by 13 percent since December, when CBOT soybeans began a 31 percent surge.
The shrinking crop in the two countries -- the second and third largest soybean exporters, respectively -- has shifted some demand to the United States, the world's top supplier.
Grains analyst Don Roose of U.S. Commodities in West Des Moines, Iowa, said the likelihood of an early wheat harvest coupled with the rapid pace of seeding the corn crop could pressure both markets this week.
"Wheat ratings are high and corn planting is off to an excellent start. There will be rains in some dry areas, and soybeans might be buying some acres," he said.
Analysts are expecting some farmers to switch from planting corn to soybeans due to better returns, with some speculating that at least one million acres of soybeans could be added.
"We see a real possibility of a million acres being switched to soybeans because bean prices are rising while corn prices are going down," said Roose.
Grains analyst Charlie Sernatinger of ABN Amro said in a note to clients that he was expecting close to 20 percent of the corn crop being planted by Sunday.
"...with some saying that last week's numbers (of 7 percent) were low because a lot of acres planted over the long Easter weekend weren't reported," the note said.
