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Could India Grain Production Lift the Markets?

The markets rallied sharply yesterday on the back of a dollar sell-off and concerns about India grain production.

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In the overnight session the grains are trading slightly lower with corn down 3/4 of a cent, soybeans down 4 1/4 cents and wheat down 1 1/4 cents going into this morning’s pause in trade. Crude oil is down $1.04 this morning and the U.S. dollar has rallied back nearly 1/2 a percent from the sell-off yesterday. ADP numbers, which are generally used as a leading indicator for non-farm payrolls, were released this morning showing payrolls grew to 200,000 jobs in May, up from 169,000 jobs reported in April. ADP payrolls were better than expected and provided strength to the U.S. dollar this morning.

Yesterday, the rally was mostly fueled by a sharply weaker dollar primarily due to the anticipation of the ADP report and an improved tone toward the Greek debt situation. However, concerns about the intensity of the Indian Monsoon season played a role in the grain rally yesterday as well. Yesterday, India cut its forecast of this year’s monsoon to 88 percent of the long term average. If this comes to pass, this will have a huge impact on India’s grain production. Typically, a monsoon that is 90 percent of normal is considered a drought year.

According to the most recent WASDE report, India is forecast to produce 90 million metric tons of wheat. However, other organizations such as the India Pulses and Grains Association have forecast output to fall to 80 million metric tons. It has been wet in India throughout March and April but recent dryness and exceptional heat has sapped the moisture from the soil making it all the more important for the June-September rains to return.

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