Attention On Crop Size, But Watch Carryover

September 12, 2013 01:05 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 2 to 3 cents lower, soybeans are 4 to 7 cents lower and wheat futures are mixed with a slight downside lean. Light trade will be seen this morning as traders await USDA's September crop reports at 11 a.m. CT. Cattle and hog futures are expected to open slightly firmer this morning.


* Focus is on crop size, but watch carryover. Heading into this morning's September crop reports from USDA, much of traders' attention is on crop size. Traders are expecting smaller corn and soybean crop estimates amid the extreme heat and dryness seen through late August and early September. The real market-mover in the report, however, could end up being carryover. On corn, the average trade guess shows the corn crop estimate falling by 116 million bu. and carryover declining by 140 million bu., suggesting traders are also expecting USDA to increase its usage projections in addition to cutting its crop estimate. That may be a stretch. For soybeans, traders are expecting the crop estimate to decline by 109 million bu. from last month and carryover to be trimmed by 59 million bushels. While that suggests they anticipate part of the anticipated crop decline to be offset with lower usage projections, the average guess on soybean carryover is 161 million bushels. That would be down 134 million bu. from just two months ago. That seems awfully agressive for USDA.

The long and short of it: Barring a shocker on the crop estimates, the carryover projections have potential to be more of a market-mover today, in my opinion.

* Rains, cooler weather coming too late. A band of much-needed rains extend from Kansas to northern Ohio this morning, bringing much-needed rains to parched Midwest soils. Along with the rains, cooler temps are moving into the region. A period of cooler temps and increased (though not strong) rain chances will extend into early next week. Unfortunately, the rains and cooler temps are coming too late and will do little to help corn and soybean yields as much of the crop has stopped growth and is moving toward maturity. But there are still some late-maturing crops that haven't shut down yet that will be aided.

The long and short of it: While the reality is that the rains and cooler temps are coming too late, traders may perceive the more favorable conditions to be beneficial for yields. And since markets trade more on perception than reality, that could cause pressure on corn and soybean futures.

* Rains timely for winter wheat. While the rains and cooler temps are coming too late for corn and soybeans, they are very timely ahead of winter wheat seeding. Drought continues to encompass the Plains HRW areas, but for much of this region, moisture conditions are the best they have been for years. After a very dry second half of summer that caused drought conditions to return to some SRW areas, rains now would be very timely.

The long and short of it: Rains as winter wheat seeding gets underway virtually ensures traders won't be concerned with crop establishment and conditions this fall. While the rains are beneficial for the crop, they are price-negative for futures.


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