By Carrie Muehling

BLOOMINGTON – Although the U.S. is months away from another growing season, grain markets are again heading into a weather market based on conditions in South America.

Right now, some areas have received too much rain and others not enough.  It’s possible some farmers in Argentina could switch from corn to soybeans if things don’t dry out there.  Illinois farmers saw a small rebound with moisture earlier this fall but things have now dried out again.  The weather situations are compounded by tight stocks here and worldwide.

The USDA will release its final supply/demand report for this calendar year Dec. 11, which will provide updated production estimates for South America and other countries around the world, excluding the United States.

“I think probably the thing we need to highlight is the sluggish pace of corn exports is a real concern,” said Brian Basting, commodity research analyst with Advance Trading.  “Balance sheets are projected to be extremely tight for corn, but that could change if we do not increase this level of corn export activity, because it is one of the worst we’ve seen in 40 years.”

Subtracting exports would eventually add to the carryout for corn and take a little bit of the edge off of the tight situation.  In the meantime, the Mississippi River situation will change the flow of grain.  Basting said that will likely have more influence on basis levels when it comes to markets.

“The local impacts of this will be felt, but it’s just hard to quantify what will happen,” said Basting.  “It’s certainly an immediate emergency situation.  There are millions of bushels that flow down the Mississippi River daily via barge.”

The fiscal cliff is another wild card as grain markets do not like uncertainty.  The inability to resolve the fiscal cliff situation would likely be negative to the markets, but Basting said this is uncharted territory.  The combination of dry conditions here and a weather market in South America along with uncertainty of fiscal cliff could be a recipe for even more volatility in 2013.

“With the short crops that we had and the problems South America experienced earlier this year with their drought and ongoing demand from China, for example, and some other factors, we’re moving into another weather market with South America and that’s only one thing that we’re watching,” said Basting.

Carrie Muehling can be reached at carrie@wjbc.com.