Heat Wave Baking Corn Belt

July 17, 2013 01:12 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading mixed with a modest downside bias, soybeans are fractionally to 5 cents lower and wheat futures are 1 to 2 cents higher. Light and choppy trade is expected this morning, based on overnight trade. As a result, any developing news throughout the day would influence price action. Hog futures are expected to trade higher on followthrough buying, while cattle futures are called mixed as traders wait on direction from the cash market and start to even positions ahead of Friday's Cattle on Feed Report.


* Heat, crop stress building. Temps will push above 90 across the Corn Belt today and the heat index will likely hit triple digits as a strong heat wave builds. The hot, humid conditions are expected to last into the weekend, but slightly cooler temps and some increased rain chances are likely next week. But forecasters are facing a situation where the European and U.S. weather models are not in full agreement for the 6- to 10-day window. The European model is warmer and drier, while the U.S. model is cooler and wetter.

The long and short of it: Weather is now traders' primary fundamental focus. Since weather models update overnight and around midday, traders' attitudes could shift a lot unless they indicate a strong, entrenched pattern.

* Chinese wheat shopping spree continues. China is reportedly shopping for at least 500,000 MT of Australian milling wheat as it tries to supplement a shortage of domestic food-grade wheat. Reuters reports upwards of 20 MMT of this year's Chinese wheat crop will be feed-grade do to weather struggles throughout the growing season. China earlier this month booked 300,000 MT of Australian wheat. For 2013-14, China has purchased around 3 MMT of wheat, mostly from the U.S, Australia and France. Export sources tell Reuters China could import around 10 MMT of wheat this year, up from 3.2 MMT in 2012-13.

The long and short of it: While China seems to favor Australian wheat, that disrupts Aussie wheat shipments to other markets, which opens the door for more demand for U.S. wheat. But with that said, Black Sea origin wheat exports will provide competition to U.S. wheat this year.

* Some upbeat economic data out of China. China's foreign direct investment (FDI) surged 20.12% over year-ago in June to the highest level since March 2011, according the commerce ministry. First half 2013 FDI is up 4.9% from year-ago. The increased FDI suggests there's confidence in China's economy despite slowed growth. The commerce ministry also says it will soon introduce measures to support exports and imports, though it gave no specific details.

The long and short of it: The FDI data is encouraging, but investors' concerns with China's economy won't be calmed until trade data and GDP uptick.


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