CHICAGO: US grain markets are gearing up for a third straight week of losses as more rains nourish the heat-stressed crop this week, and with the deadlock over raising the debt ceiling likely to fuel risk-off trades.
The dollar will also be on the radar, with financial markets concerned about sputtering US economic growth and the Aug. 2 deadline to raise the government debt ceiling.
As politicians in Washington struggle to reach a deficit-cutting deal, analysts wondered if money managers would see grains as a good bet in August, or if they would continue to liquidate positions in commodities.
"People are reducing their risks because of the debt ceiling crisis," said grains analyst Dan Basse of AgResource Co in Chicago. "When in doubt, get out."
"There are also forecasts for rain in the later half of the week," he said.
Democrats and Republicans have dug in their heels with their own proposals to cut the US deficit. A default could lead to a historic downgrade of the country's "AAA" credit rating, which could result in higher borrowing costs. This could hurt economic growth and mute investments in grains and other commodities.
Traded volume in grain markets has been muted the past week as investors chose to sit on the sidelines while they waited for a clear signal from Washington on the debt ceiling.
After more than two weeks of wilting in above-normal temperatures, the Midwest grain belt got a good soaking last week that helped crops to stem heat-stress.
Some analysts said damage to yield was already done to some of the corn crop, but added that the rains would help plants stanch further yield loss.
"There was some damage from the heat last week," agronomist Michael Cordonnier, the president of Soybean and Corn Advisor in Hinsdale, Illinois, said on Friday.
Cordonnier said he was hearing anecdotal accounts of corn in some areas going through a difficult pollination phase.
He said these areas included central-south Illinois, Indiana and western Ohio, through southwest Missouri and Kansas. "These areas got the least amount of rain," he said.
Cordonnier said even as the focus shifts to soybeans in August, when the crop goes through the critical pod-setting and pod-filling stages, he would continue to keep an eye on the corn crop, especially where they were planted late.
"It's the most important time for soybeans. It's not quite as important for corn, but corn will be going through the grain filling process how big the kernels will be," he added.
Mike Palmerino, an agricultural meteorologist with Telvent DTN, said storms were forecast to return to the Midwest on Tuesday or Wednesday after a dry weekend.
He said the rains will continue to favor the northern Midwest region. The six- to 10-day outlook calls for normal to above normal rainfall in the north Midwest and below normal in the southern part of the region.
Grains analyst Don Roose of US Commodities in West Des Moines, Iowa, said declines in Chicago Board of Trade corn futures even as the condition of the crop fell seems to signal expectations that yields will still be robust.
He said advancements in genetic modification of crops has allowed the crop to yield more bushels per acre even when crop conditions were lower.
For instance, a crop that was 60 percent in good to excellent condition that used to yield 156 bushels per acre three years ago would be able to have a slightly bigger yield now even at the same condition rating.
"That is part of the reason why prices have gone down despite a decline in ratings," he added.
A Reuters Poll of 14 analysts last week pegged the average corn yield at 155.6 bushels per acre, compared with the US Department of Agriculture's estimate of 158.7 bushels.
Of the estimates those by Roose's US Commodities was the highest at 157.5 bushels.
Copyright Reuters, 2011
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