What Traders are Talking About:
Overnight highlights: As of 5:45 a.m. CT, corn futures are trading 2 to 3 cents lower, soybeans are narrowly mixed and wheat futures are mixed with SRW contracts under light pressure. Mild profit-taking after yesterday's strong gains is not surprising. How traders react to the mostly lower price action overnight will be a good gauge of whether attitudes have truly shifted. Cattle futures are expected to be choppy with a slight downside bias, while hog futures are expected to be choppy to firmer.
* Heat, dryness take bite out of crops. Corn and soybean crop ratings declined over the past week as scattered rains Thursday weren't enough to offset negative impacts from heat and dryness. As of Sunday, USDA rated the corn crop 59% "good" to "excellent," down 2 percentage points from the previous week and 58% of the soybean crop in the top two categories, down 4 points from last week. When USDA's weekly crop ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the corn crop dropped 6 points to 355 while the soybean crop fell 8 points to 351. While crop ratings declined in most of the Corn Belt states, the two biggest production states of Iowa and Illinois paced the crop deterioration.
The long and short of it: This week's heat along with the building dryness will further zap crop ratings. In fact, traders are expecting crop ratings to take a bigger step down in next Tuesday's update (delayed one day due to Memorial Day).
* Heat dome to continue. The big bubble of much-above-normal temps will continue to hold over the Corn Belt as a heat dome is well established and doesn't look like it will be leaving anytime soon. A break from the oppressive heat is possible by the end of the holiday weekend, but even then, temps are expected to hold above normal. At the same time, dryness is likely to build as the heat dome is acting as a blocking ridge, keeping rains from entering the Corn Belt. The National Weather Service forecast for Sept. 1-5 shows the above-normal temps holding on into early September, though the 6- to 10-day outlook does call for above-normal rainfall over much of the Corn Belt, suggesting the ridge may break down.
The long and short of it: Excessive heat along with the dryness will push crop maturity, but it will also lead to some yield loss as plants will abort kernels and pods. The strong market response Monday suggests traders definitely feel the heat and dryness will do more harm than good.
* Funds as key as weather. While the fundamental focus is on weather, don't sleep on fund money flow. Funds were thought to be short around 160,000 contracts (800 million bu.) of corn futures entering the week and they covered an estimated 30,000 contracts (150 million bu.) of that position yesterday. An unknown portion of that position is also very likely offset with options positions, though funds are still net short for futures and options combined. At the same time, funds bought an estimated 23,000 contracts (115 million bu.) of soybeans yesterday, adding to their long position in that market.
The long and short of it: After having a bearish stance through the bulk of summer, funds are tipping in the other direction. How long funds actively pump money into long positions will have a major impact on how far the current rallies extend in corn and soybean futures.
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