June 27, 2012

 

US corn futures up on US Midwest drought

 
 

As continuous heat and dryness in the US Midwest threatened a crop that had initially been expected to yield a record harvest, US corn futures rose on Tuesday (June 26), headed for their biggest two-day rally in two years.

 

Wheat and soy prices eased as traders took profits after Monday's explosive session, when weekend weather forecasts erased any hope of rain for parched spring crops and the Russian Agriculture Ministry slashed its wheat crop estimate. Monday's news pushed wheat to its highest price since last August.

 

The USDA's weekly report late Monday (June 25) showed conditions of the corn and soy crops were the worst for this time of year since 1988, when one of the most damaging droughts in US history hit.

 

The declines in the condition ratings were steeper than traders had expected. Continued hot and dry weather forecast for at least two more weeks will further stress the crops and reduce yields, said meteorologist Don Keeney of MDA EarthSat Weather.

 

"With this heat and dryness there certainly will be more damage done," he said.

 

New-crop corn climbed US$0.22 to US$6.16 per bushel, with the December contract crossing the psychological barrier of US$6 a bushel for the first time since November after rising the US$0.40 limit on Monday. It has gained 10% this week, the biggest two-day rise for a December contract since 2009.

 

CBOT November soy eased US$0.125 to US$14.13 per bushel after earlier notching a contract high of $14.38-3/4, while spot CBOT July wheat fell 3/4 cent to US$7.23-1/2.

 

"We should, at the moment, understand that the corn market is in far greater danger than is the soy crop, for corn is tasselling or soon shall be, and that is the most vulnerable period of the year," investor Dennis Gartman stated in a note to clients.

 

"If tasselling does not occur properly, it shall matter not what happens to the corn crop thereafter; the crop will be lost," Gartman wrote.

 

USDA's weekly crop ratings issued late Monday rated US corn 56% good to excellent as of Sunday, down seven percentage points from a week earlier and well below a 61% average estimate in a Reuters poll.

 

Soys were 53% good to excellent, down from 56% a week earlier and in line with the Reuters poll.

 

Corn ratings have fallen for three straight weeks, cutting expectations for a bumper crop this autumn, which the market was relying on to replenish tight US stocks. Crop conditions were expected to deteriorate more this week. Analysts said crops west of the Mississippi River also could suffer after holding up well throughout June.

 

Mike Zuzolo, analyst and broker at Global Commodities Analytics in West Lafayette, Indiana, said the conditions are so bad that some farmers are worried about making commitments to delivering grain at harvest this autumn.

 

"There are two things happening. Crop insurance adjusters are out and clients are buying back grain sales," Zuzolo said.

 

Midday weather forecasts showed the possibility of rain by the US Independence Day holiday in the first week of July, Zuzolo said.

 

"In the beans, the market is trying to factor in the improving weather but in the corn they are not willing to do that because pollination is already underway," he said.

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