Big Hopes Pinned On Warmer, Drier Forecast

April 24, 2013 01:21 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are 2 to 5 cents lower, soybeans are mixed (old-crop mildly firmer; new-crop slightly lower) and wheat futures are 1 to 6 cents lower with Chicago contracts leading losses. Grain and soy complex futures are likely to be choppy to mostly lower when the day session begins at 8:30 a.m. CT. Cattle futures are expected to open mixed with a slight upside bias, while hogs are called steady to firmer this morning.


* Warmer, drier forecast fueling big hopes in corn market. Corn traders are hoping (betting) forecasts calling for much warmer temps and drier conditions from the weekend into next week will allow producers to get into fields and actively ramp up corn planting across much of the Corn Belt. The exception will be across far northern and northwestern areas of the region, where snow remains on the ground and flooding is likely once the snow melts. Still, traders feel corn planting will rapidly increase if the improved weather develops. Technically, December corn futures posted a downside breakout from the short-term consolidation range yesterday and is confirming that breakout overnight, suggesting the contract is moving the next leg lower on the daily chart. The next level of support is the June 2012 low at $5.11, followed by the psychological $5.00 mark. At this point, it appears traders want to see how the market will react to a "4" handle for new-crop futures.

The long and short of it: Traders have brushed aside any concerns with corn planting delays. Price action signals they feel the corn crop will get planted in a relatively timely manner and that recent heavy precip will be a long-term asset to the crop.

* HRW crop endures another freeze. As expected, overnight temps dipped into the mid- to low-20s across much of Kansas, western Oklahoma and the Texas Panhandle. While another freeze event wasn't a surprise, it's yet another hit to the HRW crop, which has already faced multiple spring freezes and is suffering from prolonged drought in the region. Full damage assessments from the spring freezes won't be known for weeks, but private crop estimates are on the decline. Still, traders' are not showing concern. In fact, wheat prices are sliding and appear headed for a test of the April 1 low. s

The long and short of it: Based on recent price action, it would suggest traders expect a miraculous crop recovery. That's possible, but weather from here forward must be nearly perfect.

* Bird flu update. China now has 108 reported cases of H7N9 bird flu, including 22 deaths. More alarming, Taiwan confirmed its first case of H7N9 in a 53-year-old man that recently traveled to China. This is the first case outside of mainland China. Scientists are still looking for the source of the virus, but test thus far point to live poultry markets as the likely origin. Meanwhile, a World Health Organization official called H7N9 bird flu "one of the most lethal" versions of the virus and says "this virus is more easily transmissible from poultry to humans than (the) H5N1" virus. That suggests the number of cases and the death toll will continue to rise. Some believe China has just scratched the surface in terms of number of cases.

The long and short of it: From an agricultural standpoint, H7N9's impact on feed demand is key. But the impact to China's economy is a greater concern marco-economically.


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