More rain for the U.S. Midwest as farmers try to finish planting

May 26, 2008

 ”Rain makes grain” is the old saying on LaSalle Street. But rains are the last thing struggling farmers need right now as they try to get their corn and soybean acreage planted in the U.S. Corn Belt from Nebraska through Ohio, Minnesota through Missouri. Tornadoes, thunderstorms, hail and flash floods continued to rake the region over the 3-day Memorial Day weekend. So weather and planting progress will remain front of mind in the coming week.
    Temperatures have also been well below normal this spring, hampering emergence of corn. At this rate, it will take a long warm dry spell to get the Midwestern corn crop “knee high by the Fourth of July” in many parts of the belt. That will have implications for yields especially if weather during pollination in July and August turns hot and dry.
    The wet spring has generally kept corn and soybean planting one to two weeks behind normal. But over the past week the attention of traders seemed to turn more toward the cool temperatures that have slowed emergence.  
     A turn to warmer weather in the Midwest last week was viewed as bearish, traders said, since it promoted better emergence. Weekend temperatures in the Midwest also warmed up.
    USDA will issue its next weekly crop progress on Tuesday afternoon, the day after the U.S. Memorial Day market closure on Monday.
    On Friday, traders said they expect the government to report U.S. corn planting at 85 to 90 percent complete, compared to the five-year average near 95 percent. Soybean planting should be about half way done, versus the seasonal average near 77 percent.
    Aside from Corn Belt weather, the usual outside market drivers for speculators — crude oil prices and the dollar — can be expected to factor into fund buying or profit-taking in grains this week. The conflict between Argentine farmers and the government there will also continue to spur some buying and selling.
    The Argentine situation is keeping the soy markets nervous. One day it appears the two groups will resolve their differences over a soy export tax; the next day they are at odds. Argentina is a top soybean exporter in the height of its shipping season; it is also the world’s largest exporter of soymeal.
    CBOT pit traders said the ups and downs of the Argentine negotiations has raised the volatility in the CBOT July/November soybean spread. That old crop/new crop spread moved from an inversion to a normal carry on Wednesday as the outlook for an Argentine agreement appeared close, then back to a slight inverse on Thursday that jumped back up to a 14-1/2 cent inverse by Friday as the Argentine export outlook stayed uncertain.
     But when the spread turned to carry on Wednesday, traders said, many grain merchandisers took the opportunity to roll their spot basis bids to the CBOT November contract from the more volatile old-crop July. 
     A final trading situation to spotlight: traders noted some concerns about June $6 corn options being exercised over the weekend after July futures settled at $5.99-3/4 a bushel on Friday, which was the last trading day for June options. Since traders basically “pinned” the strike, firms could decide to exercise June $6 options into July futures.  
    That could add a little extra volatility to prices on Monday night or Tuesday morning. But the first session after the markets open after a long holiday weekend is usually a little more active anyway. 

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