Last year's crippling drought has led to a spike in global corn prices and tightened available supply stocks, as U.S. farmers experienced staggering crop destruction from the sweltering heat.
But this year, Mother Nature seems to be making up for lost time.
Farmers have been inundated with so much rain in the planting season months that just 54% of the Iowa corn crop is rated good or excellent as of last week. The 10-year average of the state crop is 74%, which is raising concerns given that the planting season recently ended.
Nationally conditions are improving following a recent rush by farmers to complete corn planting to beat crop insurance deadlines. As of last week, 65% of the U.S. corn crop is currently rated in good or excellent condition, down 3% from the 10-year average.
Ongoing storms across the Northern Corn Belt have made it increasingly difficult for farmers to get seeds into the ground. The slower-than-normal pace of plantings has fueled concerns that U.S farmers would plant less corn than earlier USDA estimates, reducing the size of this year's crop.
Now, with more unpredictable weather on the horizon, all eyes look to Friday with big announcements by the USDA on planted acreage and the quarterly figures for corn stocks.
Supply and volatility concerns are expected to rise.
Friday could be a very choppy day.
Are Corn Stocks at a 16-Year Low?
On Friday, analysts are projecting that the USDA will release the lowest corn stock figure in 16 years, fueling increased concerns about supply.
Analysts on average expect domestic corn stockpiles on June 1 to have totaled 2.856 billion bushels, according to a Dow Jones Newswires poll. That figure would be the lowest total for June estimates since 1997.
The unseasonable rain has drastically affected expectations of acreage as well. The increase in spring rain made it much harder for farmers to plant corn, placing a significant strain on expected supply later this summer.
According to analysts, the expected crop plantings have been revised downward another 2% from March forecasts, from 97 million to a little more than 95 million acres. This is viewed as rather optimistic, as Morgan Stanley cut its acreage forecast to 4% lower than USDA projections earlier last month.
The delay in planting in recent weeks has fueled increasing concerns about a late harvest. Such delays could place greater stress on corn supplies later this summer while reducing expectations of yields and quality.
Given constraints on already tight stocks, corn prices may reach record prices later this summer, should a return to dry sweltering conditions follow and provide a replay of last summer's nightmare for farmers and consumers.
Morgan Stanley Quits the Ag Commodity Game
Speaking of Morgan Stanley, the esteemed bank has announced that it will quit the agriculture segment of its business. The company is expected to increase its lucrative North American fertilizer and shale gas related products while exiting agricultural products trading all together.
Morgan Stanley will continue to be engaged indirectly in equities related to the ag-commodity sector, but overall investor interest in commodities has waned since peak returns on investment during pre-crisis years.
According to reports, Morgan Stanley's past two quarters were among the unit's worst in the last 18 years. The company has also announced that it is leaving the freight and European power and gas sectors following similar moves by rival Barclays.
The departure from European energy is a large retreat for the organization in its commodity practice. After all, on paper, Morgan Stanley was the world's largest oil company in 200 without owning a single refinery, production unit, or gas station.
The company recently released a memo to the staff regarding its decision, citing a steep drop in commodity revenues. "The commodities revenue pool available to firms in our sector has fallen by almost 50% from the peak years of 2007-09," the company reported.
The memo added some positive reinforcement: "Much of this decrease is due to cyclical factors, and we firmly believe that the cycle will turn again in our favor in the future."
This comes on the back of concerns that hedge funds may begin to abandon agricultural positions due to broader concerns about their long-term outlooks for the sector. Commodity hedge funds recorded negative performances in both the last two years, which has led to investor outcries and concerns about the sector.
Hedge funds' net long positions in April in major US-traded agricultural commodities reached their lowest since 2006. This is currently being seen as a sign of tapering interest by both retail and commercial investors over the long-term.
Play the Technology for the Best Returns
The agricultural grain sector is one of the most dynamic and difficult investing in the world. But despite the decline in hedge fund and commercial bank interest in the sector, there is one way to make money without having to worry about acreage, supply concerns, or what the big money is doing.
The money, like in all sectors, is really found in the technology that can improve yields and plant quality in any adverse weather conditions. In the past, we've mentioned companies like Syngenta, which actively engages in plant science.
Next week, we'll be looking at a few companies that are the leaders in innovation and profitability in the sector, despite overall concerns about the long-term health of the commodity markets.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.