What Traders are Talking About:
* Corn conditions drop more than anticipated. As of Sunday, USDA said 72% of the U.S. corn crop was rated "good" to "excellent," down 5 percentage points from last week. On the weighted Pro Farmer Crop Condition Index (0 = crop failure; 500 = perfect crop) that equated to an 8 point decline to 381, with the bulk of the losses coming in Illinois (-3 points) along with Iowa and Indiana (-2 points each). Still, that's 16 points higher than last year's CCI rating on this date. Obviously, last week's heat and dryness took a toll on the corn crop, especially in the eastern Corn Belt. After touring Illinois and Indiana over the weekend, Pro Farmer crop consultant Dr. Michael Cordonnier reported he was surprised at the moisture stress in the southern two-thirds of Illinois (especially the southern third) and in Indiana considering it's only late May.
The long and short of it: The rain event forecast for the central Corn Belt the next couple of days is critical -- even though it's still very early in the growing season. Given the lack of subsoil moisture across most of the Corn Belt, timely rains are going to be needed throughout the growing season.
* Macros still a weight on grains. While concerns with the developing dryness across the country's midsection are building, grain and soy traders remain cautious buyers due to macro-economic concerns. After a relatively benign start to the week on the macro front, concerns are flaring up again in Europe, while the stimulus talk in China has cooled. Leading the latest round of concerns out of Europe is Spain and its ailing banking sector. There are also concerns as Italian bond yields topped 6% for the first time this year as the Italian government is forced to raise the rate it pays for investors to buy government debt. Meanwhile, the Chinese stimulus talk that was rampant Tuesday has eased as key advisors to the People's Bank of China say massive fiscal stimulus is not necessary and could be detrimental longer-term.
The long and short of it: Macro-economics are supporting the greenback, pushing the U.S. dollar index to a for-the-move high (highest since Sept. 10, 2010, overnight while weighing on commodities, especially crude oil. As a result, grain traders are being forced to keep some attention on outside markets.
* Euro-zone banking union? The euro-zone should move to a banking union and consider directly recapitalizing banks from its permanent bailout fund, the European Commission says in annual economic recommendations. "A closer integration among the euro area countries in supervisory structures and practices, in cross-border crisis management and burden sharing, towards a 'banking union', would be an important complement to the current structure.In the same vein, to sever the link between banks and the sovereigns, direct recapitalization by the ESM might be envisaged," the document said. Suggestions of a banking union and direct recapitalization seems to be in direct reference to Spain's current struggles with its banking sector.
The long and short of it: Pressure on the euro and strength in the U.S. dollar have eased since the report was released early this morning. While this isn't enough to "cure" all of the macro-economic concerns, it may be enough to allow grain traders to focus more on fundamentals today.
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