Weather Pattern Shifting?

July 10, 2013 01:13 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT corn futures are mostly 4 to 6 cents higher, soybeans are mostly 3 to 6 cents higher and wheat futures are mostly 1 to 3 cents higher. That points to a firmer start on the reopening of trade at 8:30 a.m. CT, though traders will be mostly focused on pre-report positioning. Cattle futures are expected to open steady to weaker, while hogs are called mixed on the open of the day session this morning.


* Weather pattern shifting? Traders are taking notice of forecasts calling for hotter conditions the second half of this month. The concern is that a large portion of the corn crop will be pollinating the last two weeks of July and the first two weeks of August, when temps are typically at their highest anyway. The weather pattern may not only be turning hotter, but also drier. After a very wet spring, rain chances are diminishing from the forecast. Instead of broad, well organized rain events, the rains have become more scattered. Locally in Cedar Falls, Iowa, we got 0.24 inches of rain yesterday out of an event that forecasters had originally said would produce 1- to 2-inch rains. In Nebraska, producers at our Leading Edge Seminar in Des Moines the first two days this week said dryness is a concern as dryland corn is fading quickly. Given shallow-rooted crops this year, crop stress is going to show up more quickly than normal if rains aren't consistent.

The long and short of it: The hotter and potentially drier forecast is giving corn (and soybeans) a boost. But I still believe it will be hard to convince traders there are serious concerns unless there's oppressive heat during corn pollination as overall crop condition ratings indicate the crop is fine.

* Here come funds. It should not be surprising that funds were active buyers in corn and soybeans the past two days. If there are strong price gains (or sharp losses), funds are almost assuredly an active participant. That's just how markets are currently "wired." Active fund activity is needed to sharply move markets in either direction. The past two days, funds bought 27,000 contracts (135 million bu.) of corn and 16,000 contracts (80 million bu.) of soybeans. After a period of long liquidation, funds are flowing money back into the long side of the market. But with that said, they need an incentive to keep pumping money into the long side of the market.

The long and short of it: The question is whether funds will remain active on the long side of the market or if this is a short-term wave of fund buying? The negative macro-economic environment is not encouraging of active fund buying, meaning any incentive must come from weather, crop concerns and demand -- all of which have turned more price-positive this week.

* China warns on trade. China amassed a $27.1 billion trade surplus in June, which was up from a $20.4 billion surplus in May and in line with expectations. But that doesn't tell the whole story as exports dropped 3.1% from year-ago last month, the first decline since January 2012. Imports came in 0.7% under year-ago last month. If the trade data wasn't alarming enough, the Customs Department warned of a "grim" outlook for trade moving forward amid weak external demand, rising labor costs and a stronger yuan. Meanwhile, Chinese soybean imports surged 36% from May and 23% from year-ago last month to 6.93 MMT. Despite the record monthly soybean inflow, Chinese soybean imports are down 5.4% from year-ago through the first six months of the year at 27.49 MMT.

The long and short of it: Another batch of negative Chinese economic news is expected Monday (Sunday night for us) as China will release second-quarter GDP, which is widely expected to show slowed growth.


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