Grain Markets Cool Off in Summer Heat as Some Hot Money Leaves

August 4, 2008

cornroad.jpg Commodity prices in general deflated during July as investors ran to the sidelines, taking profits. The Reuters-Jefferies CRB <.CRB> index of 19 commodity futures lost 10 percent — its steepest monthly drop in 28 years.

While declining crude oil prices led the drop in CRB and other commodity indexes, Chicago Board of Trade grain prices were not immune.  Weather worries usually keep corn and soybean prices on the boil in the hot days of July, as traders worry about heat stress and adequate moisture during pollination for corn plants, the key period determining yields. But not this year: corn weather in the Midwest has been ideal.

Corn, the most actively traded grain contract, fell 18 percent or more than $1 a bushel in July. Alongside that was a steady decline in open interest — down 7 percent during the month. Those two facts added up to big speculators cutting their bullish bets.

Factors beyond supply/demand pressured many commodities lower in July, including jitters among speculators about potential government moves to curb their participation in commodity markets given the clamor from consumers about rising food and fuel costs. But for both corn and  beans, the midsummer greenhouse-like conditions that have blanketed the U.S. Midwest Corn Belt have been the key bearish driver. Worries about flood losses from the June deluge in the heart of the Midwest seem a distant memory, although the market will get a solid reminder of the losses in the biggest USDA crop report of the year on August 12.

Meanwhile, optimism about solid corn pollination has grown. Analysts expect USDA on Monday afternoon to keep crop ratings near unchanged in its weekly crop updates. But crop watchers will next worry about the potential for an early frost that could damage corn and soybeans as the plants “finish” growth into September, filling out corn kernels and soybean pods. Both crops continue to run about 2 weeks behind  normal development due to late planting in the cool, raining spring planting period.

“The threat to this crop is it’s a late crop and there is the potential for cool air to become more established in Canada during the month of August and an early freeze in September for the U.S.”, said forecaster Mike Palmerino with DTN Meteorlogix.

Nationally, 59 percent of the corn crop was silking as of a week ago, meaning that the plants were pollinating. That compared to 81 percent for the average growth pace over the last 5 years. Looked at another way, more than 40 percent of the U.S. corn crop had not yet entered into the key yield stage.

Agronomists say another problem is that late-planted corn takes more time from silking to maturity than normal. This is because the accumulation of growing degree days (GDD, a common benchmark of heat and yield potential) per day decreases dramatically toward late summer and  into the early fall.

“These results do not bode well for late-planted corn that silks during the first or second week of August, because they suggest that physiological maturity of such late-silking corn may not occur until mid- to late-October where the risks of a killing fall freeze increase,”  said Bob Nielsen, extension agronomist at Purdue University in Indiana.

The heart of the Corn Belt typically sees its first killing freeze any time from late September in the north to mid to late October in the south.

States report growing degree days in their weekly crop updates alongside the seasonal average every Monday afternoon. This indicator will become closely watched during August to gauge maturity and the crop’s risk to freeze.

PHOTO: Corn fields pollinating near Plainfield, Illinois, on Sunday, August 3, thirty miles west of Chicago. Taken by Peter Bohan.

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