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A Flood of Developments

Published on Monday, April 1, 2019

The USDA brought a flood of selling to the market following its release of the Quarterly Grain Stocks and Prospective Plantings reports on Friday.  Below is a quick snapshot of how acreage is shifting relative to current estimates.  For a fuller view of the numbers, Click HERE to be directed to the download.

However, with the reports now behind us, there is a different flood story that has captured more attention.  It is obviously the flooding of the western Corn Belt as a by-product of accelerated snow melt, frozen ground and rainfall.  Our hearts go out to those who have been personally affected by the damage thus far.  However, we are far from having this behind us, says the National Oceanic and Atmospheric Administration (NOAA).  Ten days ago, NOAA issued a forecast for potential flood areas throughout the country as we head through May.  See Map below.

Given that this map canvases all of the major production regions in the Corn Belt, many are asking how this will affect spring planting progress, yield potential, and market behavior.  Obviously, the market has done little to embrace this story.  Many will likely take a "wait and see" approach to the discussion given that we have not lost too many US corn crops in the month of March....or April.  This story may very well have to wait to be played until May.  Any increased observation of delays will have more of an impact at that time.  Stored corn in these regions may also be affected, so be mindful of basis fluctuations in the areas most affected.

Given the immediate impact on stored and soon to be planted corn, it is simple to understand why the conversation gravitates in that direction.  But there is another piece to this story that has gone unmentioned - Demand.  Nearly 30% of US ethanol plants are located in areas identified in the previous map as regions with a major risk of flooding.  See Ethanol plant map above.  Feedlots in the northern US also find themselves in these regions.  Given the devastation recently experienced in northern feedlots, flooding and muddy ground will not be helpful to the ongoing calving season.

With all of this in mind, issues both with production and consumption may come forward in any advanced developments of spring flooding.  Be ready for potential volatility in either direction.  To that end, we invite you to contact us to evaluate strategies that give you the ability to capitalize on movement in either direction.