Tuesday, July 16, 2013

Surprise drop in crop ratings buoys grain prices

by Agrimoney.com

Grain prices enjoyed a second successive Tuesday of strong gains after data showed US crops sustaining some damage from dryness and heat even before the high temperatures expected this week.

Corn for December delivery stood 2.7% higher in Chicago at 07:15 local time (13:15 UK time), with wheat for September up 1.3% and soybeans for November up 1.6%, after the US Department of Agriculture revealed that the condition of US crops had worsened over the last week.

The proportion of corn rated in "good" or "excellent" health fell by two points to 66%, with the figure for soybeans falling two points to 65%.

Spring wheat also saw a decline of two points, to 70%, in the proportion seen in good or excellent condition, and cotton by two points to 42%.

The declines, which surprised many investors who had expected a further improvement in crop condition, reflected damage from heats against which replenished soil moisture levels provided less protection than some analysts had thought.

'Temperatures heated up'

Kansas was one of the worst affected states, seeing steep declines in ratings for corn, cotton and, especially, soybeans for which the good-or-excellent figure tumbled 13 points to 49%.

"Temperatures heated up across Kansas, with most areas 4-8 degrees above normal, and some reports of record-high temperatures," USDA scouts said, rating topsoil moisture short in nearly three-quarters of the state.

"Withering dryland corn and sorghum crops were reported in areas struggling through last week's heat and dry conditions."

In Texas, where the proportion of corn rated good or excellent sank 13 points to 58%, "there were reports of corn drying up in the fields", scouts said.

Non-irrigated corn and sorghum in some areas of the state "were harvested for silage earlier than anticipated, due to the hot and dry conditions".

Indeed, late-planted sorghum was "under stress, and recovery was uncertain at week's end".

'Livestock losses'

Crops in the major Midwest growing areas fared generally better, although corn did deteriorate in Iowa, the top producing state, in Indiana and in Ohio.

"Crops are beginning to need additional moisture," scouts in Iowa said, reporting a 23-point drop to 65% in the proportion of the state where topsoil is seen at adequate or surplus levels.

Even in neighbouring Illinois, where corn improved and soybean condition held steady, scouts said that "more rain will be needed" to maintain a strong start to crop development.

To the west of Iowa, in Nebraska, where both corn and soybean crops showed a significant decline, scouts reported temperatures 4 degrees above normal, which meant farmers had put "irrigation in full swing", but had also "resulted in some livestock losses".

'Increase crop stress'

The report comes at the start of a week which is expected to bring further heat and dryness to much of the Midwest.

Don Keeley, at weather service MDA, said that "the continued lack of notable rains in south western areas combined with very warm temperatures will lower moisture further and will increase stress on corn and soybeans there".

And hopes for rains from the weekend have reduced too, with the forecast appearing "drier across the Midwest, northern Delta, and Plains", he said.

Next week, "the drier trend in the central and western Midwest along with warmer temperatures will further reduce moisture for corn and soybeans and will increase crop stress," he said.

Analyst reaction

Nonetheless, many observers remained cautious over expecting a large upswing in prices, noting that crop condition remains well ahead of that a year ago, when hot and dry weather wrought significant damage on corn in particular.

"The market knows the window is closing to strike a death blow to the corn crop," Richard Feltes at broker RJ O'Brien said.

Paul Georgy, president at Allendale, flagged that the biggest deterioration in corn had been in Kansas, Missouri and Nebraska where even "a drop of 15% from trend yield in those states may only impact the ending stocks for corn by 200m bushels".

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