Registered: Feb 2008
07-21-12 04:01 PM
Hello Again to All.
Exist the following News:
The grain trade is starting to come to grips that this is no ordinary run of the mill drought.
Published on: Jul 20, 2012
July 20, 2012
The euro fell to more than two-year lows early this morning when a news story reportedly quoted a German official as suggesting that Greece should either comply with budget requirements or drop out of the euro-currency group. The dollar surged and money flowed out of global commodity and equity markets, creating a stiff head wind for grain and oilseed prices.
Yet, corn and soybean prices pushed higher on weather concerns while also unwinding some of the freakish spread action that took place at the end of Thursday's session. Traders anticipate significant losses once again in crop ratings on Monday afternoon, with few signs of the current adverse weather pattern breaking into early August. I still don't think the trade fully grasps the significance of this year's losses, but I'm seeing a few signs that it is beginning to realize that we're dealing with something significant this time. The bottom line is the market can't fully deal with the rationing job at hand until it accepts the fact that this year's drought is a really big deal of historical significance.
Most people in the trade remember the 1988 drought. For 24 years since then we've been dealing with periodic regional droughts. The trade always debated whether good yields in areas receiving rains would offset losses in those areas that were dry. This year is different. The entire belt is dry, although some areas are hurting worse than others. In fact, I expect us to be formally talking more about the droughts of the 30s next week and forgetting about the drought of 1988. The 2012 drought is a big big deal! Its consequences will be the subject of conversation for many years to come.
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Commodity Weather Group's Market Impacting Weather:
MIDWEST: Showers favored west-central Michigan, central Indiana and much of Ohio yesterday, along with central parts of Tennessee and Kentucky. A few showers may linger along the southern edge of Ohio today, but the best rain chances in the Midwest in the period will occur tonight into tomorrow and again by Monday night in the Dakotas, central Minnesota and central Wisconsin and in southern Ohio by Tuesday night.
This will still offer little relief to extensive moisture stress that is currently in place, leaving close to 2/3 of the corn/soybean belt (particularly west-central Indiana, much of Illinois, much of Iowa, Missouri, Kansas and Nebraska) with significant moisture stress in the Midwest. Highs were in the mid 90s to low 100s yesterday from southwestern Indiana and the southern 1/2 of Illinois into Missouri, Kansas and Nebraska, but readings moderated into the 70s and 80s in the far northern and eastern Midwest.
A resurgence of more extensive heat adds to stress though, starting this weekend. Highs will peak in the upper 90s to 100s from Sunday through Thursday in much of the belt, with the hottest conditions in central and southern Illinois, Missouri, southern Iowa, Nebraska and Kansas. Mostly low to mid 90s will occur from North Dakota into the Great Lakes as well as in northern Indiana and Ohio. Readings moderate back into the mid to upper 80s for the northeastern 2/3 of the belt from late next week into the 11 to 15 day period but remain well into the 90s in the southwestern 1/3 of the belt.
The GFS model remains wetter (particularly South Dakota, Minnesota, Iowa and Illinois) and less hot than the preferred European model through the next 10 days. Disturbances will remain small and tough to pinpoint in terms of exact timing in the 6 to 10 day period, but the best odds in the Midwest seem to lean both early and late in the outlook. Yet, CWG's forecast continues to limit these showers to northwestern and far eastern sections of the Midwest, and this would offer very limited chances for improvement.
A few showers are possible in the northwestern and far southern belt in the 11 to 15 day period, but significant relief remains unlikely. Showers may become more extensive in the 16 to 30 day for the northeastern 1/2 of the belt (most potential benefit to filling soybeans), but heat will remain a threat.
AUSTRALIA: Showers were confined to northeastern and southern edges of the main wheat and canola areas. Nearly a third of the crop areas, mainly in Western Australia and South Australia still have 1 to 2 inch deficits for the month and the light rains forecast for the remainder of the month will make little in any dent in that. This could set the stage for more significant problems next month when temperature warm and spring growth accelerates.
The remainder of the crop area is still in good condition due to the abundant rains earlier in the month. However, the concern is that an El Niño pattern will develop and threaten drier conditions in the east half of the country during key development in the August through October time frame. The one piece of good news for the region is that the trend of warming Pacific sea surface temperatures has stalled for now and could hold off the development of an El Niño for at least another month or two.
CORN PRICES were quite volatile today trading primarily inside the previous session's trading range until late in the session. A lot of spread trading took place, signaling uncertainty with the current overall trend, but also unwinding some of the damage done by a wild close on Thursday.
September corn initially lacked the strength to sustain a move to new highs ahead of the weekend, while the December contract edged closer to overhead resistance at $8. However, buying late in the session added more fuel to the bullish fires, sending the lead September contract to new all-time highs. Unfortunately, it was still insufficient to lift the new-crop December contract above resistance at $8 ahead of the weekend. However, that could very well happen in low-volume trade Sunday night.
The pattern of late has been to build additional risk premium into the market on Sunday night and Monday ahead of Monday afternoon's USDA crop ratings release. That will likely be the case once again unless we see surprise changes in the weather over the weekend that would favor the crop.
The development of El Nino was expected to provide a change in the weather pattern this summer, but momentum toward that end has waned. Some forecasters now fear that El Nino may not form until much later this year, providing a dry fall for harvest, but also casting doubts on the 2013 crop as well. That provided support for the December 2013 corn contract to recover a portion of Thursday's sharp losses.
December corn is targeting $8, but September now has its eyes on $9, with options trading at $12 for those who want to look at the possibilities. The trade is coming to grips with the historical drought, but it has more work to do.
SOYBEAN PRICES showed more impressive strength today as the focus shifts to the oilseed as forecasters call for more of the same into early August. As a result, the greatest strength was in the new-crop contracts today, with traders worried that global supplies will become very tight if this year's crop continues to deteriorate.
I raised concerns earlier about the trade not grasping the significance of the impact of this year's drought on the corn crop. I think that is even truer of the soybean crop. The trade normally doesn't worry about soybeans too much until August, but they figure the crop kind of hangs around until August and then it responds to the weather at that point.
However, millions of acres of this year's crop failed to establish a healthy root system before the effects of the drought began to hit, with many double-crop acres never even getting planted. Furthermore, the weather pattern has supported widespread problems with spider mites and other problems in areas of the Midwest that have been devastating to the crop. Soybeans are typically more day-length sensitive, so early planting has less impact on speeding up the crop. However, this year's crop is so stressed that it is speeding up the maturation process to try to reproduce before it dies.
Even so, August is still important to the soybean crop. Unfortunately, some forecasters are speculating that August could be worse than July if El Nino delays. That could really create problems for the oilseed industry, making the market's reaction difficult to predict for this commodity that seems to have inelastic demand, thanks to China.
WHEAT PRICES consolidated today after rising rapidly in parallel with corn in recent weeks. Wheat supplies are not yet tight, although that could change if we see continued losses in the Former Soviet Union and in Australia. However, in the meantime, we aren't expecting to run out of wheat. However, stocks will be tight enough to leave us vulnerable, especially if we have to feed far more wheat than is currently projected due to the devastating drought.
Wheat joined corn and soybeans in posting new highs for the move today as the food grain attempts to keep up. It also has to worry about losing acres to these crops in 2013 and the current weather pattern does little to encourage wheat farmers looking to planting the winter wheat crop. As such, wheat remains along for the ride.