What Traders are Talking About:
* First 'live' run during USDA reports. Today marked the first time markets were open during the release of USDA's grain reports. As for the numbers, USDA made no changes to its old- and new-crop corn carryover forecasts, which is getting a negative read, especially for 2012-13. Those expecting a lower yield forecast are disappointed. If heat and dryness continue to stress the crop, it will be reflected -- in time. Globally, USDA raised its 2011-12 and 2012-13 carryover forecasts and sees a 26.55-MMT year-over-year increase in stocks, which is price-negative. For soybeans, USDA trimmed its old- and new-crop U.S. carryover forecasts to 175 million bu. and 140 million bu., respectively, which is bullish. Globally, soybean ending stocks for 2011-12 and 2012-13 were slightly adjusted up from last month. For wheat, the production forecasts came in slightly higher than anticipated, but old- and new-crop ending stocks were lower than expected.
The long and short of it: The fear ahead of the reports was high market volatility as the report data was digested on the run. But all things considered, there wasn't any major backlash.
* Heat and dryness take a toll on corn, soybean crops. Corn and soybean crops deteriorated more than anticipated over the past week. According to crop condition figures released by USDA Monday, the corn crop is now 66% "good" to "excellent" compared to 72% the previous week. Traders had expected a drop to 68% in the top two categories. Eight percent of the crop is now rated "poor" to "very poor" compared to 5% the prior week. For soybeans, USDA says 60% is "good" to "excellent" compared to 65% the previous week and expectations of 63%. USDA now rates 10% of the crop "poor" to "very poor" compared to 6% the previous week. When USDA's ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 = crop failure; 500 = perfect crop), the corn crop plunged 13 points to 368, while the soybean crop dropped 11 points to 352. Both now have ratings below year-ago, when the corn crop was 376 and the soybean crop 371 on this date. The top two production states of Iowa and Illinois led declines for both crops.
The long and short of it: With soil moisture depleted in many areas of the Corn Belt, consistent rains are needed the remainder of the growing season or crop conditions will fall further. If there are additional declines in crop condition ratings, the urgency to build weather premium into the market will increase.
* Euro-zone concerns persist. Relief from the Spanish bank bailout news didn't last very long. After the initial market pop yesterday, investors remain cautious about the euro-zone. In addition to concerns Spain's banking sector faces long-term struggles, Italian problems are coming more into focus and investors are skittish ahead of the June 17 Greek elections. But despite the concerns, the euro is higher and the U.S. dollar is weaker this morning as currencies continue to correct from recent strong moves.
The long and short of it: Euro-zone concerns are going to keep investors from having a strong risk-on attitude. While there will be days when investors are willing to add risk, an extended period of investment in risky assets is not likely until there's a solid resolution to many of the euro-zone problems.
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