Grains Rally on Weather
Jun 25, 2012
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The ag complex is trading sharply higher this morning due to concerns over extreme heat and little rain throughout the majority of the Corn Belt this week. December corn is now trading the highest levels since early February, taking out resistance at $5.70 on the open last night. November soybeans traded through the $14.00 mark after several attempts.
Temperatures will top 100 degrees in many key corn and soybean areas on Thursday. Parts of Iowa and Illinois did receive slightly more rain than expected over the weekend; however the forecast moving forward is the more pressing issue. Parts of Kansas topped 100 degrees this past weekend; Hill City, KS achieved temperatures over 110 degrees the past 2 days. Our lead forecaster expects June to go down as the #1 driest since June 1988 and similarly dry to June 1936 across much of the Corn Belt. (Note: Corn prices topped near July 4th in 1988 despite the drought, the market is very quick to price-in production shortfalls) Storms associated with Debby are likely to stay away from the Corn Belt. A cool front could result in some rains this coming weekend; however significant amounts/coverage is unlikely at this point.
The USDA will release its Quarterly Stocks and Acreage report on Friday, which also happens to be first-notice day for July grain futures. Many traders expect both corn and soybean acreage to increase due to early planting during a mostly dry spring. Some analysts look for a bullish surprise in the corn stocks numbers. Basis levels have dropped off significantly during the past several days, a change that may have to do with falling demand from the ethanol sector. Ethanol margins are negative for most plants; Today’s rally in corn and break in crude will only make matters worse.
Outside markets are mostly mixed today. Crude continues its descent and is now trading below $79. Equities are marginally lower with metals mixed. The Euro is lower, which is generally a negative signal for commodities.
Cattle-On-Feed was released on Friday. On-Feed 102% vs. 101% estimated; Placements 115% vs. 114% estimated; Marketings 101% vs. 105% estimated. The report was seen as being mildly bearish for cattle prices moving forward.
We look for the markets to trade higher today. Weather markets are like a house of cards in many situations, in that one small shift in the forecast could cause the market to tumble very quickly. The next several weeks are the most important of the year for corn production. With the weather goes the markets…
Calendar: Export Inspections today at 10am CST; Crop Progress today at 3pm CST; Export Sales on Thursday at 7:30am CST; Quarterly Stocks/Acreage on Friday at 7:30am CST
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