Weather perks up, grains drop
CHICAGO (Dow Jones)--U.S. corn futures sank Tuesday, as improving weather fueled hopes that output may exceed expectations.
Corn for July delivery, the most actively traded contract, ended down 27 cents, or 3.5%, at $7.55 1/2 a bushel, after briefly dropping the one-day limit of 30 cents. Soybean and wheat futures also took a dive at the Chicago Board of Trade.
Prices were driven lower by forecasts for a beneficial mix of rain and sunshine across the Midwestern Corn Belt during the next 10 days. The favorable conditions are a turnaround from heavy rains that stalled planting earlier this spring and raised worries about the risk for a disappointing harvest.
Traders are watching forecasts closely after prices surged to a record high near $8 a bushel Friday on a reduced harvest outlook from the U.S. Department of Agriculture. The shift to favorable conditions encouraged projections the government may need to reverse course to raise its estimate.
"If you're a corn plant standing out there in the middle of Iowa or Illinois, you're going to love this. These plants are going to grow like crazy," said Drew Lerner, president of World Weather Inc., a private weather firm.
Favorable weather has already given the crop a boost. The USDA, in a weekly report Monday, said 69% of the corn crop was in good to excellent condition, up two percentage points from the previous week and above the five-year average of 68% for this time of year.
"We went from expecting a poor crop to now it's actually better than normal," said Rich Nelson, director of marketing at Allendale, a brokerage firm in Illinois. "Some may, during the next couple of weeks, talk of USDA raising the yields, which is a complete change in mindset."
Still, there is a long way to go before the crop is harvested in the autumn. Its fate will be determined by weather conditions during the key summer growing period.
On Monday, Goldman Sachs said farmers had planted more acres than the USDA estimated last week, but cautioned the average yield would fall short of the government's forecast. The firm estimated output at 13.1 billion bushels, below the USDA's forecast for a crop of 13.2 billion bushels.
"We reflect the impact of delayed planting, poor weather and flooding in lower yield and higher abandonment projections," Goldman Sachs told clients in a note.
Wheat futures felt spillover pressure from a slide in the corn market, as both grains are used for livestock feed. Soft red winter wheat for July delivery fell 11 3/4 cents, or 1.6%, to $7.31 1/4 a bushel. Soybeans also crumbled, with the July contract losing 14 3/4 cents, or 1.1%, to $13.68 a bushel.
Ethanol for July delivery dropped 0.9% to $2.751 a gallon. July oats settled down 3.4% at $3.87 1/2 a bushel, while July rice fell 1.9% to $14.33 1/2 per hundredweight. July soymeal finished down 3.1% at $358.70 a short ton, and July soyoil edged end up 0.05% to 56.85 cents a pound.