Why Corn Prices Could Soar as Extreme Weather Affects Planting Season

Source: Forex News

In
recent weeks, the focus has been on the agricultural sector. The focus has been
on the corn and soybeans sectors. This is partly because of the ongoing trade
war and ongoing weather issues. On trade, the United States has been in a
conflict with China, Mexico, and the European Union.

Almost
a month ago, Donald Trump restarted the trade conflict with China after the
trade talks broke down. He also went ahead and placed Huawei in the so-called
Entity List. This measure prevents companies from doing business with the
company. In return, China responded by announcing that it will stop buying
soybeans from the United States.

Just
last week, the Trump announced that the US will add tariffs to goods from
Mexico. Mexico is a big buyer of American soybeans and corn. While Mexico has
talked diplomatically if the tariffs go on, the country is expected to place
tariffs on soybeans and other agricultural crops.

In
addition to the trade war, there has been concern about the spreading African
Swine Fever disease. This is a disease that was first reported in China in
October of last year. Since then, millions of hogs have been culled. It has
also spread in other parts of the world, especially in the southern Asia
regions. Most of the soybeans China imports is used in feeding the hogs, which
means that the demand could be weak.

Recently,
the focus in the United States has turned to weather. In most parts of the
country, the weather has been unconducive for planting corn. According to the
US Department of Agriculture, this year’s cold and rainy spring has led to the
slowest corn crop planting season in many places. In Michigan, 33% of the
state’s acres have been planted, compared to the average of 73%. In Illinois,
corn farmers are trying to get to the three-quarters planted mark. This is the
slowest pace on record. In the Crop Progress Report released on Monday, the
USDA said that 67% of the corn planting was complete, compared with the 96%
five-year average. On soybeans, the USD pegged the planting completion rate at 39%
vs 79% five-year average.

The
news on weather should be bullish for both corn and soybeans. However, with all
the other issues described above, there has been confusion on where the price
will head to especially on the tariffs. As shown on the chart below, the price
has eased a bit. In the days to come, there is a likelihood that the prices
will continue moving higher as supply constraints continue.

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