Weather Concerns Continue To Drive Grain, Soy Prices Higher

July 2, 2012 01:39 AM

What Traders are Talking About:

* Weather market heats up. Weather remains traders' focus in the grain and soy complex as hot and dry conditions are baking the Corn Belt. Forecasts call for continued unfavorable conditions, with above-normal temps and very limited precip chances expected across the country's midsection again this week. The National Weather Service forecast for July 7-11 signals the hot and dry conditions will persist, with above-normal temps and below-normal precip expected over virtually the entire Corn Belt. Given the unfavorable weather, crop and yield forecasts are declining, which continue to support grain prices.

The long and short of it: Price trends typically extend or reverse coming out of the Fourth of July. Based on current forecasts, an extension of the weather-induced price rally seems likely.

* More crop deterioration expected. Hot and dry conditions continued to take a toll on corn and soybean crops last week. As a result, traders are expecting another reduction in crop condition ratings this afternoon. At this stage, it's going to take widespread rains before the slide in crop condition ratings halt. And based on current forecasts, that isn't likely anytime soon.

The long and short of it: With crop condition ratings falling rapidly, traders have incentive to build more weather premium into the market.

* China's manufacturing sector continues to slump. China's official purchasing managers index (PMI) slipped to 50.2 in June from 50.4 in May while the final HSBC PMI dropped to 48.2 from 48.4 last month -- both seven-month lows. Slumping export orders continue to slow China's manufacturing sector. With Europe continuing to struggle, there are concerns China's manufacturing sector will continue to slump.

The long and short of it: China's large manufacturers are still technically expanding (official PMI reading above 50), but the rate of growth is slowing, while small manufacturers continue to contract (HSBC reading under 50).


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