Rains Arrive and Pressure Soybeans

July 26, 2012 01:42 AM
 

What Traders are Talking About:

Weather pressures beans overnight. Much-needed rains that fell on the Corn Belt overnight, along with forecasts calling for cooler temps are weighing on soybean futures this morning. Corn and wheat futures are also lower, but losses are being limited by a sharp drop in the U.S. dollar index.

* Rains, cooler temps arrive.Rains fell on areas of the Corn Belt from yesterday evening through the overnight hours and are continuing this morning. While the precip was spotty, some areas got the best rains in weeks or months. In addition to the rains, temps broke as the high pressure system that was producing very hot and dry conditions was temporarily pushed out. Forecasts call for scattered rains and cooler temps to continue for the five-day period. After that, most forecasters see hotter, drier conditions returning to the western Corn Belt, while the eastern Belt could see normal temps and above-normal precip.

The long and short of it: Rains are price-negative for soybeans as traders believe they can still "save" the crop from a complete disaster. For corn, however, the rains are too late in most cases to have much of a positive impact other than slowing the deterioration.

* Warning signs of a top. It's very easy to make a case for higher corn and soybean prices. Old-crop supplies are tight, drought is eroding new-crop yield potential and supplies will likely be very tight through the 2012-13 marketing year. But there are warning signs of a top. Price volatility is increasing at historic prices, funds are heavily loaded up on the long side of the market and it's becoming harder to find sustained buying interest. On top of that, there are some indications the weather may be getting a little better. While a shift in weather at this juncture would be too late for the corn crop, it's hard for traders to be as bullish when rains are falling or are in the forecast even if they know there's been significant yield damage.

The long and short of it: While it's easy to be bullish corn and soybeans, some downside price protection is needed in case a top is in place.

* Draghi gives markets a boost. European Central Bank (ECB) President Mario Draghi says the central bank is prepared to act aggressively keep the euro-zone intact. "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. There are short-term challenges, to say the least." Meanwhile, concerns with Greece are bubbling up again as the country's deficit-reduction and reform measures are falling behind schedule. As a result, odds of a Greek exit from the euro-zone are rising again. "Troika" inspectors from the EU, the IMF and ECB are expected to issue a report in September on whether Greece deserves to receive more payments under its current bailout deal.

The long and short of it: Clearly Draghi is trying to soothe market concerns about Greece and the rest of the euro-zone. While there may be problems, if there's a belief the ECB will be there to save the euro-zone, it would act as somewhat of a security blanket for investors.

 

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