Corn and Soybean Crop Ratings Drop, So Do Prices

September 4, 2013 12:57 AM

What Traders are Talking About:

Overnight highlights: As of 5:45 a.m. CT, corn futures are trading 4 to 5 cents lower, soybeans are mostly 13 to 19 cents lower and wheat futures are 1 to 3 cents lower. Traders are brushing aside lower crop ratings and a hot, dry forecast for now, though that could spark buying interest later today. Cattle futures are expected to be choppy to lower, while hog futures are likely to favor a firmer tone this morning.


* Crop ratings drop amid heat and dryness. As expected, last week's extreme heat and continued dryness took a toll on crops. USDA said as of Sunday, 56% of the corn crop was rated "good" to "excellent" and 54% of the soybean crop was rated in the top two categories, down 3 points and 4 points, respectively, from the previous week. When USDA's weekly crop condition ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the corn and soybean crops each dropped 9 points. Corn now stands at 346, while soybeans have a 342 rating. The top production state of Iowa led declines in both corn and soybean crops.

The long and short of it: Despite the drop in crop ratings, prices also dropped, suggesting it's going to take more than late-season crop deterioration to spark buying.

* Here comes the heat -- again. Temps are not expected to get nearly as hot as last week, but they are forecast to be above normal from today into early next week as a heat dome rebuilds over the central United States. Readings in the mid-80s to low-90s are likely across the Corn Belt for at least the next seven days, based on current forecasts. In addition, there are virtually no rain chances during this span. The hot and dry conditions will continue to stress corn and soybean crops that are in some cases shutting down prematurely.

The long and short of it: The heat and dryness are pushing crop maturity, which removes some of the concerns about a potential early (or normal) first frost. But by rushing the filling process, it also hurts yield potential. Big yields are built when crops are allowed to "slow cook" into harvest.

* Nov. beans: topping or coiling? November soybean futures stopped 1 1/4 cents shy of the contract high yesterday (after getting to within 1/4 cent last week) and then slipped to a lower-range close. The disappointing finish yesterday triggered profit-taking overnight and the contract has now filled yesterday's big upside gap on the daily price chart. That price action has left a triple-top on the daily chart and suggests the contract may be putting in a top as buying interest continues to dry up just below the contract high. But bulls will argue the contract is coiling as it builds energy for the eventual push higher. After all, the old market adage is that triple-tops are made to be broken.

The long and short of it: Bullish and bearish arguments can be made for price action in Nov. soybean futures. If the contract breaks out to a new contract high and finds fresh buying, current action will be labeled as coiling. But if the contract fills the Aug. 26 gap from $13.48 to $13.31 1/2, it would suggest the contract has put in a top.

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