Weekend Rain Event Disappoints; Hot and Dry Forecast This Week

July 30, 2012 01:18 AM

What Traders are Talking About:

* Disappointing weekend rains, more crop stress likely. The rain event over the weekend failed to produce widespread relief from drought as coverage was spotty and amounts were generally less than hoped for. This week's forecast signals crop stress will continue with above-normal temps and very limited rainfall chances in the outlook. And the National Weather Service forecast for Aug. 4-8 calls for above-normal temps over all but the extreme northern Corn Belt, and below-normal precip over all but Minnesota, northern South Dakota, North Dakota and Wisconsin, which are expected to see above-normal precip. Traders are anticipating another sizable downtick in crop conditions ratings this afternoon and private crop forecasters are expected to keep dropping corn and soybean estimates amid the persistent drought.

The long and short of it: Traders are building more premium into the market as they search for a price that slows the usage pace given tightening supplies forecasts.

* Wheat crop concerns too. Wheat traders are also dealing with crop concerns, although they aren't as attention-grabbing as the U.S. drought. The worry on the wheat side is in the Former Soviet Union. Crops in some of those countries faced a rough start, a spring freeze and are now withering under drought conditions. Of primary concern is Russia, Ukraine and Kazakhstan. There was talk last week Russia may ban exports, although that decision doesn't appear to be immediately imminent and there's also talk Russia could start selling government-owned reserves to ease supply concerns and lower domestic prices.

The long and short of it: If not for the US drought, crop concerns in the Former Soviet Union would be grabbing much more attention. But as long as the US drought persists, wheat will remain in a follower's role to corn and soybeans -- both in terms of drought awareness and from a price perspective.

* Concerted effort to boost the global economy? The Fed wraps up its two-day Federal Open Market Committee (FOMC) meeting Wednesday and the European Central Bank (ECB) holds its rate-setting meeting on Thursday. Typically, the Fed does not make moves in presidential election years, but there's some expectation there will be a concerted effort among the Fed, ECB and other central banks around the world to make a move to boost global economic activity. If there isn't a coordinated effort to kick start the global economy this month, the next likely time frame would be in September following the FOMC meeting, although there's nothing that says a move must come following a scheduled FOMC meeting.

The long and short of it: Investors believe the Fed and ECB will do what it takes to "save" the economy. That's acting as a security blanket during these very uncertain and unnerving economic times.


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