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Markets To Build-in Weather Premium

Updated: 07/13/2010 @ 11:40am

Tim Hannagan, PFGBest.com senior analyst, says traders are fat from last week's profits. So, we're seeing some selling on rallies, but buying on the breaks. The breaks should be short-lived because no one wants to be a seller with the last two crop reports cutting the ending stocks numbers, cutting ending stocks, reducing soybean acres, etc."

Hannagan adds, "Everybody is recalibrating their positions. Bears are not as bearish, so they are covering shorts. The bulls are getting more bullish. So, they are adding to their longs. People are starting to unwind their short positions on their spreads."

Looking ahead, the Midwest weather forecasts are calling for a 'heat dome' to move in next week. Many marketwatchers believe there really isn't a weather premium built into the market, yet!

"The June 30th report and last week's report, are built in. But, what the market is getting ready to do is build in next week's extreme hot/dry forecast. The weather premium could be quite substantial. Not only is the very hot/dry weather suppose to hit next week. The 'heat dome' is forecast to stick around for a two week period.

Because the market trades fear before fact, it's a little early to be a buyer. At the same time, no one wants to sell, Hannagan says. "But, by Thursday, traders are expected to 'get long' ahead of next week."

The weather premium could be large because if the 'heat dome' is realized, the U.S. could lose 200 million bushels of corn and 100 million bushels of soybeans in late July early August, he says. "As a result, we could have a sub-billion bushel carryover going into next year."

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