Agriculture Investing- Grains Prices Set to Climb On Midwest’s Heat

(June 11 2012)- Corn prices could get a boost this week as a heat wave is forecast in the U.S. Midwestern grain belt at the same time when the crop is supposed to pollinate.

A meteorological ridge, which results in heat and dry conditions, is forecast in the Midwest this week and next, during expected pollination. If soil moisture is low and temperatures high during corn’s pollination, yields suffer.

Corn prices have been climbing as traders built risk premiums as dry weather has stressed the crop. The corn crop is in desperate need of rain with 50 percent of the Midwest crop low in soil moisture. Last week, concerns over soil moisture resulted in the largest one week rally in corn prices in over a year.  Corn will react in a knee-jerk fashion to the weather this season, as a bumper harvest is essential to replenish U.S. stocks, which will tumble this summer to their smallest in 16 years

While weather conditions in the Midwest will take center stage, traders will also await the U.S. Department of Agriculture’s (USDA) supply-demand report due on Tuesday. According to analysts surveyed by Bloomberg, the USDA will reduce its forecasts for corn. Corn reserves on Sept. 1, before the harvest, may fall 27 percent to 822 million bushels from a year earlier and down from 851 million forecast by the USDA on May 10 that would be the smallest since 1996.

Wheat is also feeling the influence of drought. Global wheat inventories are poised to decline next year by the most since 2007 as drought curbs production around the world. Stockpiles on June 1, 2013, will drop 6.1 percent to 185.06 million metric tons from a year earlier, according to the average of analyst estimates compiled by Bloomberg. Wheat prices have slumped for the last three months, but this will likely change.  Prices may average $7.80 a bushel in the third quarter, 24 percent more than now, Societe Generale SA predicted in May.

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