ClimatEdge can help anticipate market moving weather

2012-08-14

In an article yesterday published in the Financial Times Commodities section (Investors burnt in US grain drought), the author provided numerous examples of hedge funds which were caught off guard by the recent surge in corn and soybean prices. The chart below from the article notes that the net long positions in corn, soy and wheat were decidedly short as recently as June, when most consensus (corn) crop estimates, based off of early planting and large acreage, were extremely favorable.

(Insert FT chart image)

Enter the hot dry weather. While drier conditions may be a benefit to growers during planting, allowing for strong progress and an early start to the crop, when these conditions extend and intensify through the germination to pollination phases, the result is the highest corn market in years, and the lowest projected yields since the mid 90s. ClimatEdge reports noted the favorable start to the US season, but we also highlighted readers of the increased risk to the crop due to building heat and dryness during the mid crop period. Analyzing historical data (primarily NASA's MERRA archive), we identified years with a similar loading pattern to the one that was shaping up for 2012, and noted the similarities with other dry years. Yields will be limited for sure, but now many speculators are moving in the other direction, calling for corn prices to be sustained in the 8.50 range for the first half of 2012. We feel that this may be an overreaction to current market conditions; while our analysis is still looking for a strong corn market through 2Q13, we are not as bullish as market sentiment might suggest.

Feel free to contact us at ClimatEdge@csc.com if you would like to receive any additional information on our commodity research and support services.

In an article published in the Financial Times Commodities section yesterday - Investors burnt in US grain drought - the author provided numerous examples of hedge funds that were caught off guard by the recent surge in corn and soybean prices. The chart below from the article notes that the net long positions in corn, soy and wheat were decidedly short as recently as June, when most consensus (corn) crop estimates, based off of early planting and large acreage, were extremely favorable.

CFTC; USDA; Thomson Reuters

ClimatEdge reports noted the favorable start to the U.S. season, but we also highlighted for readers the increased risk to the crop due to building heat and dryness during the mid crop period. Analyzing historical data (primarily NASA's MERRA archive), we identified years with a similar loading pattern to the one that was shaping up for 2012, and noted the similarities with other dry years. Yields will be limited for sure, but now many speculators are moving in the other direction, calling for corn prices to be sustained in the 8.50 range for the first half of 2012. We feel that this may be an overreaction to current market conditions; while our analysis is still looking for a strong corn market through 2Q13, we are not as bullish as market sentiment might suggest.

Feel free to contact us at ClimatEdge@csc.com if you would like to receive any additional information on our commodity research and support services.

Disclaimer--CUSTOMER ACKNOWLEDGES THAT: (I) CUSTOMER HAS FULL RESPONSIBILITY FOR THE USE AND INTERPRETATION OF THE INFORMATION AND DATA, AND ANY RELIANCE BY CUSTOMER UPON THE SERVICES, DATA, CONTENT OR INFORMATION PROVIDED BY CSC WILL NOT DIMINISH THAT RESPONSIBILITY, (II) THE SERVICES, DATA, CONTENT AND INFORMATION ARE NOT DESIGNED OR INTENDED TO BE A SUBSTITUTE OR REPLACEMENT FOR PROFESSIONAL JUDGMENT, (III) CUSTOMER SHALL BASE ITS DECISIONS ON ITS PROFESSIONAL JUDGMENT INCLUDING WITHOUT LIMITATION, VERIFYING CRITICAL CONCLUSIONS AND OUTPUTS OF THE INFORMATION AND DATA AND CONFIRMING THE ACCURACY OF THE INFORMATION AND DATA, (IV) NEITHER CSC NOR ANY THIRD PARTY SUPPLIER SHALL BE RESPONSIBLE TO CUSTOMER FOR FINANCIAL LOSS, PERSONAL INJURY OR DEATH THAT MAY OCCUR AS A RESULT OF CUSTOMER’S USE OF THE SERVICES, DATA, CONTENT OR INFORMATION, AND (V) THE SERVICES, DATA, CONTENT AND INFORMATION ARE NOT MEANT TO CONSTITUTE OR REPRESENT INVESTMENT ADVICE OR A RECOMMENDATION TO PURCHASE A PARTICULAR COMMODITY OR SECURITY.

COMMENTS