What Traders are Talking About:
* Hope of increased rainfall remains in the outlook. The National Weather Service (NWS) forecast for June 18-22 calls for above-normal precip over the entire Corn Belt except for far eastern Indiana and Ohio. This follows the NWS forecast for June 17-21 which also showed above-normal precip over much of the Corn Belt. In addition to the government calling for increased rain chances next week, some private forecasters have followed suit. Now it's just a matter of waiting to see if the forecast rains materialize in the driest areas. For many areas this year, forecasts have held promises of rain chances, but they haven't materialized.
The long and short of it: Most of the Corn Belt is in need of precip, but the greatest need is in southern and eastern areas. Based on how the forecast maps look, it appears these are again the areas that could see the least rainfall from the forecast event.
* No change to corn yield? Perhaps the biggest surprise for some traders in yesterday's Supply & Demand Report was that USDA left its projected corn yield at 166 bu. per acre. Many felt that number would be lowered given the dryness across much of the Corn Belt. But while a 166-bu. national average corn yield seems overly optimistic, it shouldn't have been a surprise that USDA made no change to its yield projection this month. After all, USDA noted the quick planting pace in May when it went 2 bu. per acre above trendline with its initial yield projection. That didn't change -- the corn crop was planted very quickly. And when USDA was putting together its Supply & Demand table at the beginning of this month, 72% of the corn crop was rated "good" to "excellent." It was simply too early in this report for USDA to make a downward adjustment to its corn yield forecast. Imagine if USDA had lowered its yield forecast this month and then the weather pattern turned wetter and it had to be raised next month. That would draw more ire than by leaving the yield projection at 166 bu. per acre.
The long and short of it: While I believe 166 bu. per acre is too aggressive on the corn yield, USDA will lower that figure in time -- if weather conditions warrant. It was just too soon now. In my opinion, USDA should just stick with a trendline yield until they start doing crop surveys in August.
* Australian wheat crop cut due to early season dryness. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) cut its 2012-13 wheat crop forecast to 24.1 MMT, down 6.2% from its prior forecast, due to dryness early in the growing season. The Australian wheat crop is now seen down 18% from the record 2011-12 crop. Due to the expected drop in production, ABARES sees Aussie wheat exports falling to 20.5 MMT in 2012-13 from 22.3 MMT in 2011-12.
The long and short of it: The reduced Australian crop estimate helped fuel short-covering in wheat futures overnight, but global supplies remain ample, which limits the upside for wheat futures unless traders start actively adding weather premium into the corn market.
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