Hot Forecast Fails to Heat Up Markets on Wednesday

July 20, 2016 09:30 PM

Weather forecasters may be warning of a “heat dome” that promises temperatures in the 90s and heat indexes in the 100s, but you wouldn’t know it from the grain and soy markets on Wednesday.

Corn and wheat made new contract lows, with corn closing 3 to 4 cents lower at $3.445 for December futures and wheat down 2 to 6 cents, closing at $4.13 for September futures. Soybeans also dipped, losing 17 to 18 cents to land at $10.09 for November futures.

Why the drop? Weather, of course, which can bring quick changes for the upside or the downside for crop prices.

“Corn and soybeans were pressured by a less threatening forecast for next week,” explained Pro Farmer Editor Brian Grete after the market close. “The current heat wave is expected to be short-lived and followed by moderating temperatures and increased rainfall chances across the Corn Belt.”

Arlan Suderman, chief commodities economist at INTL FC Stone, agreed.

“This week’s heat may be the most intense of the growing season,” Suderman said in his daily commentary. “But that’s the point. The argument for a bull run was based on expectations of adverse weather intensifying as we moved through the last half of the growing season, correlating with a developing La Nina. We do see the emerging development of La Nina, but forecast models are much less threatening.”

That, combined with solid crop ratings that hint at or above-trendline yields this fall, suggests that weather premiums are disappearing in both corn and soybeans. “There are some signs of a possible intensification of adverse weather mid-August, but traders will need to see further evident of such to justify rebuilding risk premium,” Suderman said. “Otherwise, they will begin pricing in the possibility of big crops.”

Some analysts are already beginning to wonder if USDA will raise yields in its August 12 reports.

What else is moving the markets right now? The stock market, which was up on Wednesday; a strengthening U.S. dollar, and managed money funds, whose decisions are contributing to the current volatility.

“The funds continue to sell—both corn and soybeans—as a result of this change in the weather pattern,” said Greg Johnson of The Andersons, speaking Wednesday after the market close. “The funds sold another 20 million bushels of corn today (and) another 15 million (bushels) of beans. The funds still own about 70% of their long position in soybeans. They’re short in corn. So the question now becomes do the funds pile on and continue to get short corn ahead of harvest? Do they get rid of their long position in soybeans? August weather will probably answer that question.”

How can producers manage such a roller coaster? If you haven’t done so already, the best response may be to develop a marketing strategy that provides both upside opportunity and downside protection, according to Todd Horwitz of Bubba Trading, speaking on Market Rally with Pro Farmer’s Chip Flory on Wednesday. His view: the market could be reaching a bottom soon, with higher prices expected by the end of the year.

“Don’t let the day-to-day swings get to you,” Horwitz urged, while acknowledging how difficult that can be. “Of course they get to you—you’re a human being.”

Listen to Horwitz's full comments and market analysis from Chip Flory and Davis Michaelsen on Market Rally:


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