What Traders are Talking About:
* Corn, soybean crops deteriorate more than expected. USDA's weekly crop condition ratings showed heat and dryness took a greater toll on the corn and soybean crops than traders expected. As of Sunday, USDA rated 63% of the corn crop "good" to "excellent," down 3 percentage points from last week while 56% of the soybean crop was placed in the top two categories, down 4 points from last week. Meanwhile, the portion of corn rated "poor" to "very poor" rose 1 point to 9% while the soybean crop saw a 2-point jump in the bottom two categories. When USDA's weekly crop ratings are plugged into the state-weighted Pro Farmer Crop Condition Index (0 = crop failure; 500 = perfect crop), the corn crop dropped another 7 points to 361 and the soybean crop fell another 8 points to 344. Both crops are rated well below last year at this time, when corn had a 377 CCI rating and soybeans a 367 CCI rating. With another week of hot and mostly dry conditions forecast, further crop deterioration is expected.
The long and short of it: Crop concerns are mounting as corn is starting to pollinate in some areas under stressful conditions while soybeans have been slow to develop.
* El Neutral for now, but El Nino building. Climate prediction models continue to signal ENSO-neutral conditions (neither El Nino nor La Nina), but tropical Pacific waters are warming and that trend will continue in coming months, according the the Australian Bureau of Meteorology. The bureau says 6 of 7 models predict "increased risk" of El Nino before end of the July-September period. While El Nino would favor warm and dry conditions for Australia, it would suggest cooler and wetter conditions for the central United States.
The long and short of it: La Nina-like conditions (warm and dry) have continued even though the weather phenomenon has ended. The timing of the eventual onset of El Nino is key as U.S. corn and soybean crops are suffering amid heat and dryness.
* Fed now in focus. The Greek elections have passed and the country was able to avoid a worst-case scenario. Still, investor enthusiasm faded Monday. Now focus is on the Fed as it starts a two-day meeting today. Some are expecting the Fed to announce a third round of quantitative easing (QE3), but a more likely scenario is an extension of Operation Twist, which is to expire at the end of the month. There doesn't seem to be enough support for a new round of bond buying among Fed governors to trigger QE3 at the moment.
The long and short of it: Markets are acting like QE3 will be announced. If that's how investors feel, there could be some disappointment around 1:15 CT Wednesday when the Fed's announcement comes following the two-day Federal Open Market Committee meeting.
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