Waiting On Demand To Signal Prices Have Fallen Far Enough

July 26, 2013 01:02 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn and soybean futures are narrowly mixed, while wheat futures are mostly 3 to 5 cents higher. Unless some fresh demand news surfaces ahead of the reopening of trade at 8:30 a.m. CT, I expect similar price action this morning. Cattle futures are expected to trade mixed, while hogs are expected to favor a firmer tone this morning.


* Focus now on end-user demand. Price action in the grain and soy complex this week "feels" like it was overdone to the downside. Heavy liquidation pressure on August soybean and soybean meal futures has weighed on the entire grain and soy complex, along with pressure from favorable weather. With the sharp break in prices, traders are now turning their attention to the demand side of the market. Talk that China canceled or will cancel some U.S. soybean purchases contributed to the sharp price washout the past two days, so traders are waiting to see if those rumors are confirmed. But more importantly, traders are waiting to see how global end-users respond on the buy side to the sharp drop in prices. If demand perks up, it will signal prices have dropped to "value" levels. If global end-users don't come to the market, more near-term price pressure is likely as the market searches for demand, especially the corn and wheat markets. So far, South Korea has been about the only foreign country to show much reaction to the price drop in corn and that has been a series of small purchases (mostly Black Sea origin). There has also been a smattering of wheat business -- mostly non-U.S. purchases.

The long and short of it: Demand will tell traders when prices have fallen far enough. Until that occurs, grain and soy complex futures will struggle to gain much traction.

* Needed rains fall on western Corn Belt. Much of the western Corn Belt received needed rainfall late Thursday and through the overnight hours. The heaviest rains were seen through far southern Nebraska, Kansas and across northern and eastern Iowa, with inch-plus totals common in these areas. After a very wet spring, conditions had become very dry over the past month-plus, so these rains were very welcome. These rains are moving off to the eastern Corn Belt this morning.. Meanwhile, temps are expected to be unseasonably cool through the weekend across the Corn Belt. The 10-day weather forecast continues to call for normal to below-normal temps and normal to above-normal precip across the Corn Belt.

The long and short of it: Weather is seen as non-threatening (price-negative) for corn and soybeans into early August.

* Spring wheat crop on par with year-ago. After sampling fields in North Dakota, far northern South Dakota and far western Minnesota the past three days, scouts on the Wheat Quality Council HRS tour calculated a hard red spring wheat yield of 44.9 bu. per acre, which was exactly the same as they found last year, but greater than the five-year tour average of 43.3 bu. per acre. Tour participants say while yield potential is the same as year-ago, this year's crop still has a ways to go before harvest because of the delayed start. To maintain yield potential to the finish line, the crop is going to need favorable weather -- warm and sunny conditions, but not too much heat.

The long and short of it: Typically, high-yielding wheat crops are lacking in protein, but this year's crop has the potential given favorable late-season weather to be high-yielding and high-protein.


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