July 10, 2012

 

US soy futures hit all-time high, corn comes close

 

 

As an expected cooling in the Midwest temperatures failed to bring significant rains, grain prices jumped again on Monday (July 9), bringing soy futures to an all-time high and corn futures to within 2% of their record top.

 

Chicago's best-traded December corn lot traded up the exchange limit of US$0.40 at one point, to a contract high of US$7.33 a bushel.

 

The July contract hit US$7.86 3/4 a bushel, the highest since June 2011, when prices, on a spot contract basis, hit their record high of US$7.99 3/4 a bushel. July soy actually managed to exceed their record of the 2008 rally, hitting US$16.79 1/2 a bushel.

 

The best-traded soy lot set a contract high, of US$15.71 ¼ a bushel, while wheat - while not directly at risk from the US heat wave, with the winter crop harvest largely finished - was pulled up to a 10-month high of US$8.44 ¾ a bushel.

 

The rises followed a weekend in which, while banishing the Midwest heat wave which has raised fears for huge crop losses, "oddly was not accompanied by heavy rainfall", Gail Martell at Martell Crop Projections said.

 

While rainfall is expected, it is not forecast in the main to stay south of the major Corn Belt row crop farms.

 

"Rains in Missouri south of the I70 highway, that's not where the production is," Jerry Gidel, feed grains analyst at Rice Dairy, said.

 

Weekly crop condition data later from the USDA are expected to show a drop of six points, to 42%, in the proportion of the domestic corn crop seen in "good" or "excellent" condition, the worst reading since 1988.

 

For soy, the proportion rated good or excellent is seen tumbling five points to 40%, also a 24-year low.

 

The weather updates sparked further falls in expectations for US yields this year, especially the result for corn, which has been undertaking the sensitive pollination period in far-from-ideal conditions.

 

"The erratic weather pattern continues to such an extent I've seen private estimates as low as 139 bushels per acre for corn," GrainAnalyst.com trader Matthew Pierce said.

 

"There are a few in the mid-140s bushels per acre with Lanworth in that category, with this a distinct possibility if rains do not start in the latter half of July."

 

US Commodities said, "The trade is now dialling in huge losses.  A sub-40 bushels-per-acre soy yield is also widely discussed."

 

The USDA currently estimates the US corn yield at 166 bushels per acre and the soy yield at 43.9 bushels per acre, although these figures are up for revision on Wednesday (July 11), when it releases its next monthly keynote Wasde crop report.

 

The high prices have sparked expectations of a sharp pull-back by consumers, which would, in loosening supplies somewhat, put the brakes on the rally. However, ideas of this so-called demand destruction have been limited in part by the small degree of supply coverage that major buyers had coming into the rally - with expectations of a huge crop ahead, and official estimates of farm gate corn prices falling to US$4.20-5.00 a bushel, stemming the incentive to buy ahead.

 

"End users had no cover," Gidel said.

 

"There was meant to be plenty of the stuff around. And farmers had not been selling much."

 

Futures prices well below insurance rates gave growers little incentive to sell ahead, rather than wait for the prospect of crop damage.