Gulf Coast Braces for Isaac

August 28, 2012 01:13 AM

What Traders are Talking About:

* Focus on Isaac. The U.S. Gulf Coast is bracing for Tropical Storm Isaac, which is expected to reach hurricane status before making landfall later today. While Isaac will only reach low-grade hurricane status, it's a slow-moving storm, which increases the likelihood of heavy rains and flooding along the Gulf Coast and Delta. Heavy remnant rains are expected through the Mid-South, with some areas of the Corn Belt also likely to see potentially heavy rainfall by the weekend. From a market perspective, the cotton crop in the Deep South is of primary concern. USDA reported that as of Aug. 26, Mississippi has 55% of bolls open and Louisiana has 61% open. Given poor stalk quality with much of the corn crop, there is also concern with potential lodging damage. But filling soybeans in the Corn Belt could get needed precip.

The long and short of it: Impacts to energy are the primary focus, but cotton, corn and soybean traders are also closely watching Isaac's development.

* Draghi a no-go on Jackson Hole. European Central Bank President Mario Draghi will skip the Fed's economic symposium in Jackson Hole, Wyoming, later this week due to a "heavy workload." Draghi's absence in Jackson Hole lowers the odds a coordinated effort by central banks around the world to boost the global economy will be announced at this time. Instead, the ECB is thought to be planning another round of stimulus on its own. And there's still some hope among investors Fed Chairman Ben Bernanke will announce additional economic stimulus in Jackson Hole.

The long and short of it: The Jackson Hole confab could turn out to be disappointing as coordinated stimulus seems unlikely and odds of QE3 are also not high.

* Short El Nino? El Niño conditions continue to build, pointing to a fully established event in the coming weeks, according to the Australian Bureau of Meteorology. Conditions associated with El Niño point to increased rainfall in the central U.S. this fall, while Australia would trend drier than normal. But while Aussie scientists expect El Niño to be fully established, they also signal it could be a short event. The bureau says, "Climate models suggest sea surface temperatures in the tropical Pacific Ocean will maintain values close to, or greater than, typical El Niño thresholds before returning to neutral towards the end of 2012 or early 2013."

The long and short of it: A short-term El Niño would not likely provide enough rainfall to the central U.S. to completely alleviate severe moisture shortages.


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