What Traders are Talking About:
Followthrough selling overnight. Soybean futures led losses overnight as the price pullback that started Monday continued. While fundamentals are strong, rains are falling across areas of the northern and eastern Corn Belt and more precip is in the forecast. That's hard for traders to ignore even though crop condition ratings and yield prospects continue to fall. Plus, there are ongoing euro-zone concerns which are curbing investor risk appetite.
* Crop conditions continue to plunge. USDA's weekly crop condition ratings showed only 26% of the corn crop and 31% of the soybean crop is rated "good" to "excellent," which is down five points and three points, respectively from last week. On the flip side, 45% of the corn crop and 35% of the soybean crop is rated "poor" to "very poor" -- up seven points and five points, respectively. When USDA's weekly crop ratings are plugged into the state-weighted Pro Farmer Crop Condition Index (0 = crop failure; 500 = perfect crop), the corn crop plummeted 17 points to 263 and soybeans plunged 12 points to 280. That signals both crops are "fair" at best and declining rapidly amid excessive heat and dryness.
The long and short of it: While crop condition ratings continue to plunge, it's old news as everyone is fully aware of the crop struggles. Another source of support is needed to fuel a fresh wave of buying interest now that markets are starting to show signs of topping.
* Scattered rains falling, more in the forecast. Scattered rains were seen in the Dakotas, Minnesota and Wisconsin overnight, with the heaviest totals in southern Minnesota and southern Wisconsin. Those rains are moving into far northern Illinois and Indiana this morning. Additional scattered precip is forecast to develop across the region today and Thursday with the greatest chances in the Great Lakes region and eastern Corn Belt as the rains develop along the northern and eastern edge of the high pressure ridge. Some forecasters are calling for better rainfall chances during the second half of the 15-day outlook, as well. While there are increased rainfall chances in the short- and mid-term outlook, no one is calling for drought-breaking totals.
The long and short of it: Rains would be of benefit for the soybean crop which is flower, setting and in some cases filling pods. For corn, any rains now could help slow crop deterioration, but won't add bushels. That's why soybeans are getting hit harder on the pullback than corn.
* Improved news out of China, more euro-zone concerns. China's HSBC flash PMI rose to 49.5 in July from 48.2 in June amid increased factory output. That signals pro-growth monetary policy measures are taking hold, giving investors some hope China's economy has weathered the worst of the slowdown, although export orders from Europe are likely to remain sluggish. Speaking of Europe, Moody's downgraded the outlook for Germany, the Netherlands and Luxembourg to negative from stable amid concerns fallout from the euro-zone debt crisis will hurt the bloc's strongest economies.
The long and short of it: Because of the euro's strong weighting in the U.S. dollar index, the euro-zone concerns have a direct market impact and influence investor attitudes. But for agricultural commodities, China is the largest focal point from a demand perspective.
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