Forexpros – U.S. grain futures eased during European morning hours on Tuesday, as growing fears over the global economy prompted investors to sell contracts and lock in gains from an impressive rally that took corn, wheat and soy prices to multi-month highs on Monday.
Escalating concerns over scorching heat and dry weather conditions in the U.S. Midwest and Great Plains region have been fuelling a recent rally in grain prices.
Front-month corn has gained nearly 30% since June 1, July-wheat jumped approximately 25%, while front-month soy rose 22% during the period.
Grain traders have been focusing mostly on market fundamentals, such as weather, in recent weeks. Agricultural traders pay close attention to the weather because farmers need favorable conditions to grow large crops.
While some parts of the Midwest and Great Plains region received some relief rains over the past 24 hours, updated weather forecasts showed that dry weather was expected to keep stress on U.S. Midwest corn and soybean crops for at least the next few days.
On the Chicago Mercantile Exchange, corn futures for July delivery traded at USD7.6200 a bushel, dropping 2.15%. Front-month prices rose more than 5% on Monday to hit USD7.8550 a bushel, the highest since June 13, 2011.
The September corn contract traded at USD7.1912 a bushel, slumping 1.8%.
Corn futures rallied on Monday after the U.S. Department of Agriculture’s weekly crop progress report showed that the recent adverse weather conditions across the U.S. Midwest and Great Plains-region caused significant damage to crops.
U.S. corn crop ratings declined to the lowest levels for this time of year since 1988 last week, according to weekly crop progress data from the U.S. Department of Agriculture on Monday.
The USDA said that 40% of the U.S. corn crop was rated in ‘good’ to excellent’ condition as of July 8, down sharply from 48% the previous week and below the 69% recorded in the same week a year earlier.
The report showed that 46% of the crop in Iowa was rated ‘good’ to ‘excellent’, down from 62% the previous week, while only 19% of the crop was rated ‘good’ to ‘excellent’ in Illinois, compared to 26% in the week before.
Iowa and Illinois are the two largest corn growing states in the U.S., accounting for nearly 29% of U.S. supplies.
Corn prices have been well-supported in recent sessions amid concerns dry soil in the U.S. corn-belt could strain the development of crops in the region, just as it enters its key pollination phase in the next few weeks.
The next few weeks will be important for the grain, as the crop could face bigger losses if more rain doesn’t come during its pollination phase.
The U.S. produced 38% of the world’s corn last year, making it the both world’s largest corn producing nation and the largest exporter of the grain.
Elsewhere, soybeans futures for July delivery traded at USD16.5225 a bushel, falling 1.15%. Front-month prices hit a fresh all-time high of USD16.7575 a bushel on Monday.
The August soy contract traded at USD15.9775 a bushel, shedding 0.5%.
Soy prices rallied on Monday after the USDA said 40% of the soybean crop was rated ‘good’ to ‘excellent’ last week, down from 45% the previous week. Nearly 66% of the crop was ‘good’ to ‘excellent’ in the same week a year earlier.
Soy futures have gained sharply in recent weeks, as the same hot, dry weather that boosted corn was seen benefitting soy futures as well. Soybeans are grown in many of the same regions across the U.S. as corn, but the key growing phase for soybeans does not start until later in the summer.
Global supplies of the oilseed are already on the decline, as severe drought conditions earlier in the year in major South American growers Brazil and Argentina damaged crops in the region.
Meanwhile, wheat for July delivery traded at USD7.9575 a bushel, declining 2%. The front-month contract hit USD8.2350 a bushel on Monday, the highest since May 27, 2011.
The September wheat contract traded at USD8.1550 a bushel, retreating 1.5%.
Wheat prices came under pressure as some selling pressure spilled over from corn. Wheat and corn prices are linked because both can be used as animal feed.
Wheat futures have rallied sharply in recent weeks, tracking strong gains in corn and amid speculation the USDA will cut its forecast of 2012-13 world wheat production in its next monthly report in July, following downgraded outlooks for crops in several key exporting countries.
Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.
The grains market now shifts its focus to Wednesday closely-watched USDA monthly supply and demand report for possible revisions to U.S. corn and soybean yield estimates.
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