Wednesday, August 3, 2011

The week that was in grain markets

With the Australian dollar at record highs against the greenback and the US government missing a bullet on their debt default, the negative macro factors hopefully should cool down in the short term. The absence of fund speculative activity has been noticed after stepping aside from the market of late (apparently still licking their wounds after being on the wrong side of the bearish USDA June 30 report). Global weather patterns continue to keep the trade guessing as to where the market will head in the second half of the year, as is evident in the choppy trade that has occurred since prices had their seasonal lows in early July. Although there is small bullish element in regard to low US yields, the market won’t get a feel for this until later this month. Until then, prices should remain in their current range. Considering the consent flip-flop of global weather forecasts, uncertain weather patterns are likely to continue.

The US government has finally thrashed out an eleventh-hour deal on Sunday night to prevent a default on its spiraling debt. Although disaster has been avoided for now, many ponder if it is just delaying the inevitable crash further down the line (And the odds are getting scarily high for GFC mark 2 eventually occurring). The House of Representatives passed the bill – considered the challenging part- and the compromise now needs to be voted through the Senate. The deal requires USD2.4 trillion in spending cuts and savings over the next ten years; these will be gradually implemented as to avoid putting additional pressure on an already fragile economy. In terms of impact on US agricultural, ethanol subsidies and tariffs are already in the firing line whilst acres in the Conservation Reserve Program -which has close to 32 million acres in fallow, will also be up for review.

US crop conditions continue to bear the brunt of extreme July temperatures. In summary, corn crop are losing yield potential, with detrimental extreme heat contributing to excess moisture stress for usually thirsty corn. Temperatures have averaged 3C above normal, with July ’11 ranking amongst the hottest Junes on record. The kicker has been nighttime temperatures have also been well above average, enhancing respiration loss. There has have been just enough rains to keep the trade from getting overly concerned. The problem, however is that the rains have continued to come in the same locations, generally in the northern and western Corn Belt (Nebraska, Minnesota through to Ohio). Meanwhile, crops in southern Corn Belt, (Kansas & MIssouri & Texas) are burning up amid continued heat and dryness.

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