Focus on Weather, USDA's August Crop Reports

August 6, 2012 01:46 AM

What Traders are Talking About:

* Rains pressure markets. Weekend rainfall was heavier than expected across the Corn Belt. While not all areas received needed rains, totals were generally a half inch to inch with some areas getting in excess of 2 inches from central Iowa through Ohio. Lighter amounts were received in western, northern and southern areas of the Corn Belt. Forecasts call for more rainfall chances for some early this week with a swath from southern Iowa through northern Illinois expected to see rainfall totals of a half inch to 1.25 inches the next three days. Rainfall totals are expected to be much lighter to nonexistent outside of these areas.

The long and short of it: Soybean futures are being hardest hit by the weekend rainfall as that's the crop that has the most to gain. The rains will help corn hold onto remaining yield potential, although that's not much in many areas.

* USDA's August crop reports also in focus. Aside from weather, traders' focus will be on USDA's August Crop Production and Supply & Demand Reports, which will be released Friday. Persistent drought conditions have greatly trimmed yields. But yield is only one factor in the total production equation. Another key is how much USDA reduces harvested acres. In June, USDA estimated harvested corn acres at 88.851 million. That figure will be lower, some feel significantly lower. In June, USDA estimated harvested soybean acres at 75.315 million acres. USDA surveyed both planted and harvested bean acres for August. What NASS does with its Aug. 1 corn and soybean crop estimates will largely determine how aggressive the World Board must get when cutting 2012-13 usage projections for corn and soybeans.

The long and short of it: Attention on the August reports is always high because it’s USDA's first survey-based look at the corn and soybean crops, but focus is greater than normal this year as traders wait to see how low USDA will go with its initial crop estimates.

* Russian crop woes continue. The U.S. isn't the only country suffering from drought conditions. Russia (and other Black Sea countries) is also seeing crop prospects dwindle amid persistent drought. Private firm SovEcon is the latest to cut its Russian crop forecasts due to drought. The private consulting firm now sees total grain production at 72 MMT to 75 MMT compared to a range of 78.5 MMT to 81.5 MMT previously. Wheat output is now estimated at 40.5 MMT to 43 MMT from a prior forecast of 46 MMT. Meanwhile, Russia is freeing up additional government stocks to keep the domestic market supplied and prices from rising too much. There's also speculation Russia will curb exports, although the government has so far denied that talk.

The long and short of it: Russian official meets Aug. 8 on food security. There's some speculation that's when a grain export ban or restrictions could be announced.


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