Grain traders are in a tizzy, wanting to buy corn as a hedge against higher prices as the U.S. crop withers in the drought-stricken southern Midwest, but a flagging global economy is reining in bullish enthusiasm.
The challenge is to weigh the bullish market implications from declining crop prospects against the bearish macroeconomic influences including downgrades of big banks, the ongoing euro zone debt crisis and at best a tepid U.S. economy.
Such opposing forces promise tense market positioning, frayed nerves and sleepless nights.
Wheat, corn and soybean future markets tumbled on Thursday with corn plunging 4 percent as investors sold off commodities and other risky assets after ratings agency Moody's downgraded 15 of the world's biggest banks.
But on Friday, agricultural markets bounced back and moved higher as meteorologists again warned that harsh weather would place further stress on corn and soybean crops.
Investors are braced for more volatility this week.
"Unless we get some decent rains soon the corn crop is in trouble. Come Monday with no rains, we could be sharply higher," a veteran Chicago Board of Trade trader said.
Condition ratings for the U.S. corn crop have shed 14 percentage points from good-to-excellent since the season began. The market is prepared for another 2 to 3 point drop in the U.S. Department of Agriculture's (USDA) weekly crop progress report on Monday.
"The biggest market driver this week will be Monday's crop condition ratings. They're going to be lower but the question is how much," said Sterling Smith, analyst for Citigroup.
"We're expecting conditions to drop a lot in Indiana and Illinois but if some of the other states come down too that would be an extra bonus for the bulls," he said.
Dry weather continues to stress corn and soybean crops in the southern U.S. Midwest while timely rainfall has boosted crop growth and development in the northwest, an agricultural meteorologist said on Friday.
"The rains that were expected in the eastern Corn Belt late this week didn't pan out, the driest regions stayed dry," said Andy Karst, meteorologist for World Weather Inc., Kansas City.
Karst said severe dry weather stress on crops was occurring from southeast Missouri, southern Illinois, western Kentucky, south and central Indiana. "I don't see much help for them for the next week or two," he said.
Hot weather was expected over the weekend in the southwest with highs in the 90s F and low 100s F with high readings in the 80s F elsewhere, Karst said.