What Traders are Talking About:
* Corn crop condition ratings drop more than anticipated. USDA now rates 40% of the corn crop "good" to "excellent" while 30% of the crop is rated "poor" to "very poor" -- a swing of 8 percentage points from the top two categories to the bottom two from the previous week. 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 plunged another 25 points to 303. The corn CCI is now 86 points below its seasonal peak (first rating of the season). Meanwhile, USDA rates 40% of the bean crop "good" to "excellent" and 27% of the crop in the bottom two categories -- a swing of 5 points from last week. The bean CCI rating dropped 15 points to 303 and is now 59.5 points below seasonal peak (also the rating of the season). The drop in corn condition ratings was greater than expected and each of the top 18 production states deteriorated on our weighted index, with Iowa and Illinois leading the decline. The drop in the soybean crop was right in line with expectations.
The long and short of it: Major media is really beating the drought drum now, so there's now longer a surprise factor, making it harder to attract fresh money to the market.
* Funds continue to buy corn. Funds bought an esimated 25,000 contracts (125 million bu.) of corn on Monday to continue the recent surge of speculative money into the long side of the market. Since July 2 (the first trading session of the month), funds have bought 74,000 contracts (370 million bu.) of corn. That's a lot of fund money flowing into long positions in a very short period of time, helping fuel the strong price rally.
The long and short of it: As I warned last week, keep an eye on fund activity. Once the aggressive fund buying dries up, it will be much harder to attract interest in the long side of the market, especially now that "everyone" knows about the drought conditions.
* What to watch for as signs of a top. In addition to speculative money flow, there are other indicators to watch closely when looking for signs of a top. Increased volatility at high prices is typically seen when markets are putting in tops. And trading margins are also important. As margins are increased, it becomes more expensive to maintain positions, which can start to trigger some liquidation, especially for traders who have amassed strong profits in a short period of time. CME Group announced Monday it is raising soybean and soybean meal margins, effective at the end of business today.
The long and short of it: Signs of a potential top are starting to surface in the corn and soybean markets. Although yield potential is declining rapidly for a majority of the key production areas, weather markets are typically short-lived.
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