Dome of heat may trigger risk premiums Sun May 20, 2012 10:59am EDT
* High heat in Midwest may support corn * Dome of heat seen on Memorial Day weekend * Wheat in driver's seat on weather concerns * Surging wheat prices may dent feed use
By K.T. Arasu CHICAGO, May 20 (Reuters) - Investors who have been building weather-risk premiums in U.S. wheat futures are expected to expand their protective play into corn this week amid forecasts for high heat and little rain. Temperatures are set to rise in the southern portion of the Midwest grain belt, which produces the bulk of the country's corn and soybeans, and in the Mississippi Delta, where the Southern corn harvest precedes that in the Midwest. Wheat futures at the Chicago Board of Trade posted the biggest weekly gain in nearly 16 years last week amid growing concerns that hot and dry weather in the southern Plains could slash yields, especially in top winter wheat state Kansas. Kansas and other southern Plains states like Oklahoma and Texas are just coming out of a devastating drought that parched the region and decimated wheat production last year. The surge in CBOT wheat futures, which hit their highest level in nearly eight months on Friday, have reversed their discount to corn futures -- which could mean that less wheat could be used as an alternative feed to corn. The U.S. Department of Agriculture has been counting on an early winter wheat harvest to help cushion extremely tight supplies of corn held over from last year's harvest. "There will be a heat dome during the Memorial Day weekend (on May 28) across the entire Midwest grain belt, with temperatures in the 90 degrees (Fahrenheit)," said grains analyst Tim Hannagan of PFGBest in Chicago. "Investors are starting to build weather premiums to reflect the uncertainty ahead of us. Without water nothing grows." The mildest winter in decades got corn seeding off to a fast start in the Midwest this year, and expectations are for the harvest to begin as early as August instead of the usual September. But the plants are vulnerable to harsh weather, and any drop in yields could scuttle high hopes for this year's crop to boost ending stocks, which are projected to fall to the lowest level in 16 years this summer in the United States. The U.S. Department of Agriculture has forecast a record U.S. corn crop this year at 14.790 billion bushels, with ending stocks next summer seen at a record 1.714 billion bushels -- more than double this year's projected 851 million.
DOME OF HEAT FIRST MAJOR CHALLENGE TO CORN CROP Meteorologist Joel Widenor of Commodity Weather Group in Bethesda, Maryland, said a high pressure ridge would raise temperatures in the Midwest and Delta region. He said temperatures could be in the 80s degrees F to low 90s F this week in the southern Midwest and in the low to mid 90s in the Delta region. Widenor said corn in the Delta region could be vulnerable to the heat wave as the plants would be pollinating -- a key stage of development when yields are set. The ridge -- also referred to by traders as a dome -- could be the first weather test for this year's corn crop which has otherwise been thriving under favorable weather conditions. Read rest at the following link:
