Producers are recovering from the mid-July heat, and forecasts showed some short-term relief coming. While that helps the crop in the ground, prices will react accordingly, and better weather will weigh on the markets.
Jerry Gidel of The Price Futures Group said part of the reason markets haven’t “totally collapsed” on the rapidly changing forecasts is that prices have already been relatively baked in.
“The market already started to react to (the forecast),” Gidel said. “Friday’s rally was kind of surprising. We seem to have already cranked in a bit of the cooler temperatures last week.”
With the volatility in the weather so far this growing season — from early rains to the recent hot, dry stretch across the Midwest — Gidel said the biggest concern he has is how vulnerable the state of the crop is at the moment.
“A high percentage of (the vulnerability) is going to be in August,” Gidel said. “Traditionally, August is hot, but it hasn’t been in the last four, five years. There’s a lot of people in the weather game trying to project it won’t be so bad. If it isn’t, we’ve got a lot of vulnerability.”
He said rumors about China making purchases of U.S. agricultural products have re-entered the market as well to provide some support, but stressed that until something concrete comes through, it will be a tough headline to trade.
On July 19, a report from Reuters suggested protein content in Brazil’s crop has been lacking, which may have also stemmed support in the market. The report suggested China, which has been purchasing more Brazilian soybeans, may be disappointed in the quality for their livestock.
However, Gidel noted the U.S. has been dealing with the same issue, so it might be a nonfactor.
“I thought it was interesting, but I think it goes back to the scenario where genetics in the right conditions, you can get good yields but protein doesn’t follow with it,” Gidel said. “It’s all weight. I would say it’s a nice background story.”
He said the reason China may be starting to eye non-Brazil options may have more to do with current basis levels.