What Traders are Talking About:
Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 5 to 8 cents higher, soybeans are 16 to 21 cents higher and wheat futures are 2 to 6 cents higher. Followthrough buying in the overnight session combined with hotter forecasts the second half of the month should keep bulls solidly in control of price action when trade resumes at 8:30 a.m. CT. Cattle and hog futures are expected to open daytime trade with a mixed tone.
* Hot, dry forecast providing price pop. USDA's weekly crop condition ratings showed a 1-percentage-point improvement in the "good" to "excellent" categories for corn and no change in the percentage of soybeans in those top two categories. When those crop ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the corn crop improved 2 points to 375, while soybeans held steady at 367. But corn and beans extended Monday's gains overnight as some forecasts call for heat to build across the Corn Belt the second half of the month, as the corn crop is pollinating across a good portion of the Corn Belt.
The long and short of it: There have been comparisons between this year and 1947, a year in which heat and dryness built in late July after a very wet spring. That's why traders are responding to forecasts for a period of hotter temps the second half of the month. But I still believe price strength will be relatively short-lived and a strong, corrective rally is a selling opportunity.
* End-users responding to price drop. Export demand has picked up following the recent drop in corn, soybean and wheat prices. Leading the way has been China, which has purchased at least 1.32 MMT of U.S. SRW wheat (confirmed by USDA via daily sales reportings) and 120,000 MT of U.S. new-crop soybeans. But Taiwan, South Korea, Mexico and "unknown" have also made purchases -- some U.S. and some from other countries. The key is that global end-users responded on the price break, suggesting that break dropped prices to "value" levels.
The long and short of it: The key now is whether the demand persists as prices rise. After getting some coverage in place on the break, I suspect the demand will dry up, limiting the sustainability of a price rebound unless crop concerns build.
* Chinese consumer, producer prices remain headed in opposite directions. China's consumer price index (CPI) rose 2.7% over year-ago in June, which was right in line with expectations, but up from a 2.1% increase in May. Food prices continue to lead the rise, increasing 4.9% over year-ago last month, while non-food prices firmed 1.6%. Meanwhile, China's producer price index (PPI) came in 2.7% under year-ago in June, the 16th consecutive month of deflation in the price producers receive for their goods.
The long and short of it: Diverging consumer and producer prices are a conundrum for China's central bank as it tries to shape monetary policy in a way that limits inflation, but yet spurs demand for its goods and economic growth. Most economists see the People's Bank of China taking a passive approach toward monetary policy.
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