Soybean (SOYBEAN) and corn (CORN) futures opened lower after rolling over and are trading 12 and 8% lower, respectively. The US Midwest is experiencing its worst drought since 2012. If so, could the declines deepen?
News
- U.S. weather forecasts predict higher-than-expected rainfall in several states key to corn and soybean production
- Change in weather causes investors to reduce 'weather premium' as seen in downward pressure among agricultural commodities traded on Chicago's CBOT exchange
- It is worth noting that possibly higher agricultural commodity prices with weak crops could add to inflation later in the year
- According to CBOT data, commodity funds sold off SOYBEAN and CORN contracts yesterday while simultaneously being buyers of WHEAT contracts
The prospect of higher rainfall in the so-called U.S. corn belt is easing drought stress. A model created by the GFS indicated a wet climate (July 1 to 3) in the northwestern corn belt and the eastern Great Plains. If the forecasts come true, a better harvest could take place in northern Illnois, Wisconsin or Minessota. At the same time, in many places, rain in the US will already change relatively little. A previous USDA report pointed to worsening crop conditions. A few days of rain may signal a correction but not necessarily a change in fundamentals. A short-lived change in the weather seems a suitable excuse to take profits on recently overbought CBOT commodity contracts. StoneX analysts have indicated that US agricultural commodity quotes will be extremely dependent on rainfall forecasts in the near term. Without prolonged rainfall, fundamentals for grains including soybeans or corn appear pro-growth.
SOYBEAN chart, D1 interval. Soybeans opened after rolling with a gap down and slipping below the SMA200 (red line) - CORN (gold chart) also opened lower. Looking at the chart in the longer interval, it may resemble a bearish RGR formation, with a key level to hold in the $1200 - $1300 range (neckline). In an extreme situation, i.e. a slide below the 61.8 Fibonacci retracement, the road to $1,000 could be opened. Source: xStation5
