Commodities | Jul 05 2012
By Jonathan Barratt
The dry weather over two-thirds of the growing areas in the US looks set to continue and with this the prospect of changed crops conditions will see prices paid continue to trade higher. The expected rainfall from last week failed to materialize into substantial falls and with this we saw wheat and corn trade to a 9-month high and the front month for Soybeans trade to 4.5-year highs. This is relatively critical not only for the US but also for those countries that import food stuffs from the US.
The US is the world's largest corn exporter and outside the EU is the largest wheat exporter. In soybeans it has just pipped Brazil as the number one exporter due to recent weather events in South America. The market will be closely focusing on the Food and Agricultural Organization's (FAO) “Food Index” for signs that prices are on the march higher. In June, the index fell a few points to 204, however the concern is that with the dry spell in the US continuing that prices paid for Corn, Wheat and Soybeans will have inflationary aspects that we will need to deal with. The index peaked 235 in February 2011 and the next reading is on the 5th July. The market has been complacent throughout the year as the forecasts for the size and quality of crops in the US have been extraordinary good.
Corn
The dry weather for corn continues in the mid west and the USDA has just released its forecast on the current corn crop conditions. The index has dropped a further 8% from last week and so far it is 29% off the forecasts from the beginning of the year. In addition, Cropcast has reduced the corn yields down 3.3 bushels per acre. As it stands we are not going to have a bumper crop as anticipated in fact quiet the opposite. Technically, we have reached the target of US645, if you are not long it is hard to get in at these levels . Look for a dip back to the US615-25 support level. Remember to place a stop as all it takes is a few rain events to see trader’s cash in.
Wheat
As we mentioned last week, potential downgrades in in China and lower yields in the US will keep prices well bid. This rhetoric remains intact this week. In addition to this we continue hear reports that supply targets will not be meet in the Black Sea region. In addition to this, as corn prices continue to surge, we expect demand in the use of wheat for feed to increase. This would also be supportive the complex. The technicals are building up for a big move, which ultimately could see US800. The only safe place for a stop is US625. If this is too far then it will have to come down to preferred money management techniques.
Soybean
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We anticipate that the highs of US1500 will be tested again”. This has occurred and with the USDA downgrading soybean conditions again the dry spell will affect yields. Cropcast has also reduced its production forecast per acre by 0.6%. Technical as long as we can stay above US1500 then further gains can be had. Keep an eye on US1470 as this is the current bifurcation point.
Produced by Jonathan Barratt direct from the trading desks of Commodity Broking Services, Barratt's Bulletin provides expert analysis of commodity markets, global indices and foreign exchange movements. Click here to take a no obligation 21-day trial to Barratt's or to learn more visit www.barrattsbulletin.com. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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