Hot, Dry Conditions Take Bigger-Than-Expected Bite Out of Corn and Soybean Crops

July 3, 2012 01:13 AM

What Traders are Talking About:

* Corn and soybean crop conditions plunge more than expected. Heat and dryness took a greater toll on corn and soybeans crops last week than traders expected. As of Sunday, USDA reports 48% of the corn crop was rated "good" to "excellent" compared to 56% in last week's report while the portion of crop rated "poor" to "very poor" increased to 22% from 14% previously. For soybeans, USDA says 45% was rated in the top two categories versus 53% the prior week, while 22% was in the bottom two categories compared to 15% previously. When USDA's crop ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 = crop failure; 500 = perfect crop), the corn crop plunged another 21 points to 328 and the soybean crop dropped 18 points to 318.

The long and short of it: With another week of extreme heat and dryness, crop condition ratings are likely to deteriorate sharply again in next Monday's update.

* Mild relief possible next week. Some forecasters have reduced temps and increased rainfall chances for some areas of the Corn Belt next week, although temps are generally expected to remain above normal and precip will likely stay below normal for the bulk of the region. The best chance for some relief is expected to be in the southeastern Corn Belt. But after prolonged heat and dryness, the relief may be a case of too little too late, especially for the corn crop -- if it develops. With the corn crop pollinating in some areas and about to pollinate in most others, weather is at the critical stage. Without some relief very soon, significant yield damage to the corn crop will be seen. That's already the case in some areas.

The long and short of it: Weather markets are all about perception. Currently, traders are very concerned about the extreme heat and dryness, which is causing them to actively add weather premium into the market. But if the perception changes, markets could put in a top even if there's no meaningful improvement in yield potential.

* Happy Fourth of July. Grain markets close at noon CT today (12:15 p.m. CT for Minneapolis wheat futures) while livestock markets will observe normal trading hours today. All markets and government offices are closed Wednesday, July 4, for the Independence Day holiday. Grain and livestock markets will resume trade on Thursday, July 5 -- 9:30 a.m. CT for grains and 9:05 a.m. CT for livestock futures.

The long and short of it: Have a happy and safe holiday celebration.


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