Hot or Not? Corn Traders Get Whipsawed Trying to Predict Weather

(Bloomberg) -- A spring deluge that delayed U.S. planting sparked a big run higher in the corn market this year. Now traders are trying to determine how the crop might be affected by more wild weather.

After the rain ended, conditions turned hot and dry spurring concern that plants would be stunted by the heat. Then, almost without warning, it rained again, sending corn prices tumbling. Now, traders are concerned the chaos will reign until the U.S. government issues its updated yield outlook on Aug. 12.

While hedge funds increased their net-bullish bets as of July 16, much will depend on the weather moving forward. Crops are more vulnerable than normal to adverse weather this year because of the planting delays.

“We’ve got to somehow navigate ourselves to a time when there’s more solid information. That’s what we’re dealing with -- we have no idea what the U.S. yield is going to be,” said Jerry Gidel, grain strategist and account executive at Price Futures Group in Chicago. “You hope like heck that when you buy it too high that you can still get out” and make money, he said.

Higher temperatures can hurt corn just as it is reaching critical development stages that determine yield size. The broiling weather is at an extreme -- the world just had its all-time hottest June in data back to 1880, and it’s likely 2019 will end as a top-five warmest year on record.

“There are so many other cards stacked against the crops this year it could be a problem,’’ with more hot weather in the forecast, said Brad Rippey, a meteorologist with the U.S. Department of Agriculture. “Corn leaves are rolling under conditions that would be considered normal for this time of year. It shows the vulnerability for crops in the Midwest this year to any weather extremes.’’

Corn prices are up about 16% in 2019 because of the wild weather, and hedge funds are betting the trend will continue.

In the week ended July 16, investors’ net-long positions expanded to 187,260 futures and options, according to U.S. Commodity Futures Trading Commission data published Friday. The holding, which measures the difference between bets on a price increase and wagers on a decline, reached a three-week high.

But the overall move in positions was minuscule, underscoring the caution surrounding a market that’s become so sensitive to daily weather changes. The net holding climbed by less than 0.1% as shorts fell 5.1% and longs slid 1.8%.

Harvesting usually starts in September, and it might take at least that long before the market has a true sense of how corn will fare. Smaller-than-expected yields could spark another leg higher for prices amid good demand for U.S. exports. But if there’s enough rain and temperatures start to cool again, it will mean a bumper crop at a time of plentiful inventories.

“It’s one of the hardest times of the year to be positive, because most of the time we are marching into a crop,” said Don Roose, president of U.S. Commodities Inc. in West Des Moines, Iowa.

--With assistance from Brian K. Sullivan.

To contact the reporter on this story: Michael Hirtzer in Chicago at mhirtzer@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi, Patrick McKiernan

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