Weather and July Corn Futures
We’ve been told a few times earlier in the season that weather likely won’t be an issue during the 2020 corn season because of the intention of producers to plant 97 million acres of corn according to the USDA.
The forecast information available as of June 12, 2020 are certainly trying to make weather an issue. Will it matter for July corn futures prices or December corn futures prices? Only time will tell if commodity futures prices will be impacted in the weeks to come. We’ll be able to look back on the market data and answer the question.
But, let’s take a look at the crop weather forecast information anyway. It was a real-time update as of June 12, 2020.
The image above shows the impact of the 15-day ECMWF weather forecast on the corn yield forecasts from CropProphet. The production weighted decline in bushels per acre of corn is significant. Is it significant enough to impact July corn futures? You’ll have to decide for yourself.
Because we’ve quantified the impact of weather on crops, we can apply weather forecast information to quantify the likely impact of weather forecasts on corn and soybean yield forecasts. This means CropProphet users have daily update weather forecast information transformed into corn production forecast information. It makes the assessment of the impact of the weather forecast on July corn futures prices easier.
Two Week Corn Belt Forecast
The ECMWF two week forecast shows that over the next two weeks, the corn belt can expect only 49.7% of normal precipitation. This is the major driver of the declines in the ECMWF driven yield forecast. The temperature forecast, shown below in terms of growing degrees days, is not as extreme. However, it does show a corn belt production weighted forecast of 13 degrees greater than normal for the next two weeks. This is not a problem.
Corn Belt Long Range Forecast
CropProphet has a companion product called the World Climate Service. It uses long-range weather forecast and seasonal climate forecast information to provide probabilistic forecasts for between 3 and 6 weeks in advance. Beyond about 10-day, forecasts for specific daily conditions are not possible.
However, probabilistic forecast information still has value. They just have to be interpreted correctly. The week 3 ECMWF precipitation forecast above shows elevated changes of less than normal precipitation (left-hand map) remain for key areas of the corn crop. We also present the “anomaly map” (the right-hand picture) implied by this probability forecast. The anomaly is suggesting drier than normal conditions 3 weeks from now, as well. Should this forecast verify as correct, there could be an impact to July corn futures prices.
Week 4 Corn Belt Forecast
The ECMWF Week 4 average temperature probability forecast is shown above. Note that the western corn belt indicates as much at 60-70% chance of warmer than normal temperatures in the first week of July.
The World Climate Service forecasts have been calibrated using historical data from the ECMWF forecast model. Calibration helps to ensure that if a specific event, such as warmer than normal temperatures, are foretasted with a certain probability that the event occurs with that frequency. In other words the futures market should expect with a 50-70% chance that temperatures in the first week of July will be warmer than normal.
It also makes sense to look at the precipitation forecast. The signal is not as strong but there are still hints of drier than normal conditions. The probability analysis shows slightly greater than normal chances of lower than normal precipitation. The anomaly map (on the right) shows less than normal precipitation can be expected.
In any long range forecast scenario there is always a chance of below normal, normal, or above normal conditions occurring. It’s just the nature of our atmosphere. The objective of a long-range forecast analysis is to quantify risk. Both CropProphet and the World Climate Service are designed to quantify the risk.
The risk can be further monitored by following daily updates to the corn yield forecast rather than real-time weather data.
The 15-day corn yield forecast change and the longer-range subseasonal climate outlooks certainly suggest higher probabilities than normal of risk to the corn crop. If these events materialize, the impact will be a reduction of the corn production forecast by many million bushels of corn. That could impact July corn futures prices by only cents per bushel. Will corn prices be impacted more substantially? Only time will tell.