The Good, The Bad and The Ugly

July 2, 2013 01:06 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are fractionally to 3 cents higher in all but the July contract which is 7 cents higher, soybeans are 1 to 3 cents higher in old-crop contracts and 6 to 8 cents higher in new-crop contracts, while wheat futures are 4 to 10 cents higher. The firmer tone should carry through to the reopening of trade at 8:30 a.m. CT, though bulls may struggle to keep the upper hand for the entire day session given a lack of crop concerns and building wheat harvest. Cattle futures are expected to open steady to firmer, while hogs are called steady to weaker this morning.


* Crop progress/condition data -- the good, the bad and the ugly. As of Sunday, USDA said 4% of the U.S. soybean crop was not yet planted (3.11 million acres based on last Friday's Acreage Report) and 9% of the crop had yet to emerge (7 million acres). In Iowa and Minnesota (the No. 1 and No. 3 production states, respectively), there were still roughly 660,000 acres left to plant (380,000 in Iowa and 280,000 in Minnesota) and around 1.5 million acres (1.05 million in Iowa and 500,000 in Minnesota) yet to emerge. On the flip side, USDA rates 67% of the soybean crop as "good" to "excellent" (up 2 percentage points from last week) and only 7% "poor" to "very poor" (unchanged). When those numbers are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the soybean crop improved 3 points to 367. For corn, only 3% of the crop is silking, which is 6 percentage points behind the five-year average. Not surprisingly, silking has not yet started or is just underway across the Corn Belt. As for corn conditions, USDA rates 67% "good" to "excellent" and only 8% "poor" to "very poor." When plugged into the Pro Farmer Crop Condition Index, the corn crop improved 3 points from week-ago to 373.

The long and short of it: For now, the good (crop condition ratings) are outweighing the bad and the ugly (planting delays and slowed crop development) as traders feel weather conditions are favorable and improving.

* Crop problems being masked. There are holes in this year's corn and soybean crops throughout Iowa, southern Minnesota and northern Missouri. But as crops are growing, those holes are being masked. They still exist, it just doesn't appear they are still there -- at least as badly as before. The combination of the holes being masked and the non-threatening weather forecast will make it hard to convince traders there is much wrong with this year's crops. In fact, I get a sense traders feel those of us in the poorer areas are trying to "talk down" crops to push prices higher. If crop condition ratings continue to improve, it will become harder to convince traders of crop problems

The long and short of it: Unless there's an extended period of extreme heat and dryness coming out of the Fourth of July, it's going to be hard to convince traders there are crop problems.

* Bulls defend $5 corn -- for now. December corn futures got within 1/2 cent of the psychological $5.00 level Monday and bounced and are firmer overnight. For now, bulls appear willing to defend this key level. Unless end-users aggressively buy corn on this price dip (South Korea bought 179,000 MT of Black Sea and Brazilian corn overnight) or fund selling dries up (they have sold 39,000 contracts -- 195 million bu. -- of corn the past two sessions), the corn market will struggle to find more than modest corrective buying short-term, as traders perceive weather conditions to be favorable -- and improving. It's hard to believe bears would get that close to testing $5.00 without giving it a shot at seeing how the market reacts below that level.

The long and short of it: Expect December corn futures to dip below $5.00 at some point soon, but I don't believe there's a lot of downside risk below that point as end-users (livestock, poultry and dairy producers, ethanol plants and exporters) should use this price pressure to get extended coverage for 2013-14.



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