Crop Estimates Continue To Decline, But Markets Looking Toppy

July 25, 2012 01:23 AM

What Traders are Talking About:

Grain and soy futures rebound overnight. After two days of sharp, corrective losses to open the week, grain and soy futures are firmer this morning. Weather and crop prospects remain the primary focal points, but outside markets are also supportive this morning as the U.S. dollar is under heavy pressure. Fund activity is also key to price action today as funds have been very active sellers in grain and soy futures so far this week.

* Forecast remains uncertain. Some private forecasters are indicating a slightly better chance for rains into early next week, while others have backed off a bit. But even the forecasters who indicate the best rain chances are not calling for a drought-breaking event. Forecasters continue to indicate rains will favor northern and eastern areas of the Corn Belt as the precip pushes up over the high pressure ridge which is parked over the center of the region. The key to how much precip moves into the the central and southern Corn Belt will be whether the ridge shifts and allows some cooler, wetter air to move in.

The long and short of it: Soybean traders will closely monitor weather moving forward as now is "go" time for the soybean crop.

* Corn, bean crop estimates shrinking. A Reuters poll of grain analysts showed they now see the US corn yield at 130.8 bu. per acre and crop size at 11.4 billion bushels. For soybeans, the poll showed a yield of 38.5 Bu per acre and a crop of 2.9 billion bushels. Pro Farmer crop consultant Dr. Michael Cordonnier slashed his corn yield to 130 Bu per acre and his corn production estimate to 10.92 billion Bu, while he sees the soybean yield at 38 Bu per acre and pegs the crop at 2.78 billion bushels.

The long and short of it: Corn crop estimates, in particular, are declining rapidly as the crop continues to wilt under the persistent heat and dryness. Any rains now could maybe stabilize the crop, but they won't add bushels. Rains at this stage would be timely for soybeans and could still "save" the crop.

* Odds increasing for QE3? The Wall Street Journal had a story Tuesday suggesting Fed officials who are concerned with the pace of economic growth are getting closer to a fresh round of stimulus. The Federal Open Market Committee will hold a regularly scheduled meeting next Tuesday and Wednesday, but a move is not expected then. Instead, investors say the Fed is more likely to wait until September before pulling the trigger on a third round of quantitative easing (QE3). While the Fed has no history of making major announcements in election years, especially right ahead of elections, there's a sense that frustrations with the economy within the Fed are building.

The long and short of it: While the timing of additional stimulus remains uncertain, investors are certain the Fed will be there to "save" the economy if needed. While that expectation is already entrenched, a third round of quantitative easing would still give a boost to high-risk investments, including commodities.


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