Weekend Rains Not Enough to Stop Crop Deterioration

August 7, 2012 01:37 AM

What Traders are Talking About:

* Scattered rains in near-term outlook. Forecasts call continue to call for scattered rains across the Corn Belt over the next several days, although forecast models have shifted the area that's likely to get the heaviest precip. The most active rains are now seen across the northern and eastern Belt as opposed to yesterday's outlook which indicated the central Belt would be the wettest. The 6- to 10-day forecast has some uncertainty as the U.S. and European models are in disagreement over rainfall and temps.

The long and short of it: Soybean traders, in particular, will keep a close watch on rainfall forecasts. While crop condition ratings continue to fall and the crop has been impacted by drought conditions, the soybean crop would be helped if the weather pattern turns wetter and cooler.

* Crop conditions continue to fall. The pace of deterioration slowed over the past week, but the condition of the corn and soybean crops continues to decline. USDA now rates only 23% of the corn crop "good" to excellent" while 29% of the soybean crop is rated in the top two categories. That's down 1 point for corn and unchanged for soybeans. On the flip side, 50% of the corn crop is rated "poor" to "very poor," while 39% is "poor" to "very poor" -- up 2 points for both crops. While USDA's ratings are plugged into the state weighted Pro Farmer Crop Condition Index (0 = crop failure; 500 = perfect crop), the corn crop dropped another 6 points to 249 and the soybean crop slipped another 3 points to 271.

The long and short of it: At this stage, it's no longer news when crop condition ratings decline. If, however, conditions signal they have bottomed, it could help put in a market top.

* Russia not likely to curb grain exports. Russian officials have spent the past week-plus insisting they will not curb grain exports despite reduced production due to drought. But speculation has continued that the country will intervene on exports. One factor many are not considering is politics, specifically Russia's membership into the World Trade Organization later this month. That will keep Russia from curbing exports or imposing export tariffs, according to private consulting firm SovEcon, as they will have to adhere to stricter global trade rules once the country is in the WTO.

The long and short of it: Even if Russia does not curb exports in any way, a dramatic cut in output will slow the export pace. SovEcon forecasts Russia's wheat exports will fall to 8.5 MMT in 2012-13 from 21.6 MMT in 2011-12.


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