Corn Crop Off To A Very Strong Start, But Traders Will Closely Monitor Weather

May 22, 2012 01:12 AM

What Traders are Talking About:

* Predictably strong start for corn crop ratings. As expected, USDA's initial corn crop condition ratings of the spring showed the crop is off to a strong start. With 77% of the crop rated "good" to "excellent," that's the strongest start for a corn crop since 2007. When USDA's initial crop ratings are plugged into the weighted Pro Farmer Crop Condition Index, the corn crop scores a strong 389. Despite the strong initial rating, however, there is some concern given recent heat and dryness across the Corn Belt and South that has zapped soil moisture received earlier this spring. As a result, traders are anticipating USDA's crop ratings will slide next week.

The long and short of it: The strong initial crop ratings are short-term price-negative for corn, but traders will continue to watch the weather very closely. If there are signs of extended heat and dryness, weather premium will be quickly built into the market.

* Aussie bureau: El Nino to develop. The latest forecast from the Australian Bureau of Meteorology continues to call for the development of El Nino the second half of this year. The bureau says all models suggest waters in the central and western Pacific will continue to warm over the coming six months and reach or exceed El Nino thresholds. This forecast is very consistent with what Aussie meteorologists have been saying in prior outlooks.

The long and short of it: The pace and magnitude of development of El Nino should be watched closely. A rapid warming of Pacific waters would pump more moisture into the atmosphere and increase rain chances over the country's midsection. If El Nino develops quickly and is strong, it would increase odds of trendline or better yields for Corn Belt crops.

* OECD sees hope for economic growth, but Europe remains a hurdle. The Organization of Economic Cooperation and Development (OECD) kept its global economic growth forecast at 3.4% this year (down from 3.6% in 2011), but sees a recovery to 4.2% growth next year. The biggest hurdle to growth remains the euro-zone, which is forecast to contract 0.1% this year but rebound to +0.9% growth next year. OECD now forecasts U.S. GDP at 2.4% this year (up from 2% previously) and 2.6% in 2013. Chinese economic growth is expected to slow to 8.2% this year (down from 8.5% in the prior outlook), but should rebound to 9.3% growth next year, according to OECD.

The long and short of it: The OECD forecast is somewhat encouraging, but the major caveat the group put on the outlook is the euro-zone. That's why investors are so in tune with day-to-day and week-to-week happenings in Europe -- the world has a lot riding on it.


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