What Traders are Talking About:
Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 6 to 7 cents lower, soybeans are mostly 1 to 3 cents lower, while Chicago and Kansas City wheat futures are 3 to 5 cents lower and mostly around 1 cent lower in Minneapolis. Cattle and hog futures are expected to trade higher this morning.
* Corn crop deteriorates further amid heat, dryness. USDA's weekly crop condition ratings showed 63% of the corn crop is now rated "good" to "excellent," a decline of three percentage points from the previous week. That was slightly greater than the 1- to 2-point drop traders were anticipating. USDA now says 11% of the crop is rated "poor" to "very poor," an increase of two points from week-ago. When those crop ratings are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500 point scale), the corn crop dropped 5 points to 366. Illinois, Iowa, Nebraska and Kansas led the decline. In addition, crop development remains much lower than normal with only 43% of the crop silking compared to 56% on average. The delayed development is most pronounced in Iowa (18% silking versus 54% on average) and Minnesota (19% versus 46% on average).
The long and short of it: Price pressure on corn futures overnight signals traders are putting more stock in the favorable near-term forecasts than they are the drop in crop condition ratings and slowed development. Demand is what's needed to signal prices have reached a "value" level and fallen far enough.
* Dec. corn leaning on key support. December corn futures are testing support at the July 8 low of $4.90. If that level is violated, next strong support lies at $4.74 (January 2010 high) and $4.60 (November 2010 low). Below that is the psychological $4.50 mark. Contract-low support is at $3.98 1/4.
The long and short of it: If support at $4.90 is violated, it would open the door for December corn futures to move the next leg down on the daily price chart. I expect global end-user demand to pick up on the price drop and limit the downside, but the path of least resistance for now is down.
* Huge miss on pork stocks. Traders were expecting USDA to show 626 million lbs. of pork in frozen storage as of June 30. Instead, the figure came in at 564.9 million pounds, which was down 14.3% from the end of May and 4.7% under year-ago. The unexpected drawdown in pork stocks last month represents the largest-ever month-to-month decline in pork stocks at 94 million lbs., suggesting pork demand is much stronger than anticipated. Much of the better-than-expected demand was likely due to stronger domestic usage as retailers more actively featured pork as they were faced with record boxed beef prices ahead of summer.
The long and short of it: The friendly pork stocks data and implied strong usage may give the hog market one more strong run at the upside, but history says it will be hard for the hog market to maintain prices at or above current levels for long, especially as hog/pork production will build into year-end.
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