Drought Concerns Send Grain Futures Soaring
Fundamentals
The anticipation of bumper U.S. Corn and Soybean crops are being challenged by Mother Nature, as hot and dry weather has plagued the Midwest early in the growing season. Moderate drought conditions are spreading throughout the Corn Belt, with the important grain producing states of Iowa, Illinois and Indiana among the hardest hit. Weather forecasters are not holding out much hope for improved conditions in the near future, with the 6 to 10-day forecasts calling for above normal temperatures and below normal rainfall.
Growing conditions are already beginning to deteriorate, with the USDA weekly crop progress report showing 63% of the U.S. Corn crop rated good to excellent. This is down 3% in just a week, and is 7% below this time last year. For Soybeans, only 56% of the crop is rated good to excellent, vs. 60% last week and 68% a year ago. With U.S. ending stocks already tight, some traders were counting on record production for both Corn and Soybeans this year, though we will need to see whether conditions begin to improve soon in order to meet this goal.
Many traders will focus closely on the USDA planted acreage report due out at the end of June to see exactly how much acreage was dedicated to both Corn and Soybeans this season, with the hope that huge acreage can help offset any drought damage to yields and prevent potentially short supplies going into the new year.
Technical Notes
Looking at the daily chart for December Corn, we notice prices soaring during the past two sessions, with only the 200-day moving average (MA) and the exchange 30-cent limit limiting further gains. Momentum as measured by the 14-day RSI has turned positive, with a current reading of 60.97. Resistance is seen at the aforementioned 200-day MA, currently near the 564.25 area. Should this technical barrier give way, we could see a test of the 575.00 area. Support is seen at the 20-day MA, currently near the 523.25 price level.
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