On The Money Grain Commentary 4-12-12

Corn Outlook:

     The bulls were silenced when USDA left 2011-12 ending stocks of corn unchanged from March at 801 MB.  Traders expected a reduction of 70-80 MB because of the decline in the grain stocks report last month.  However, supplies remain tight as world stocks fell 1.4 percent with stocks-to-usage in the lower third of the twenty-year range.  Meanwhile, planting is off to a fast start at 7 percent complete compared to the average of 2 percent.  Illinois is 17 percent done, which is well above the average of one percent.  Export inspections were 23.3 MB and below the average needed to reach USDA’s target of 1.7 BB.  Right now, shipments are running 12 percent less than the pace necessary to achieve their target.  In other developments, the trend following funds are less bullish as they trimmed their long futures position 100 MB to 695 MB.  The longs of the index funds grew 20 MB to 2.015 BB.        

     July corn fell to 622.75 on Wednesday and rebounded.  This is a short-term low ending the decline from the April 3rd high at 659.75.  Resistance is expected on a rebound to 643.  Meanwhile, if 622.75 fails, look for support at 615 or 608.  Seasonally, corn futures tend to work lower until the end of April followed by a rebound into early May.  Longer-term, there is little reason for a breakout of the trading range that has been ongoing since October.  Unless weather becomes a factor, the next market mover is not until the supply-demand report on May 10th.  Next week, the odds are even as to whether July futures will be higher or lower.

Bean Outlook:

      Traders bullish soybeans got their wish when the USDA lowered 2011-12 ending stocks 25 MB to 250 MB.  Argentina and Brazil’s production fell 1.5 and 2.5 million tons, respectively, from last month.  However, even with the reduction world stocks-to-usage remain in the upper third of the twenty-year range.  In the meantime, bullish enthusiasm for soybeans has become excessive as the long position of the trend following funds is at a record 1.030 BB, while the index funds are long 850 MB.  The market can ill afford any negative fundamental news or adverse developments in the macro economic sector.  In other news, export inspections were 26.3 MB with China taking 9.4 MB.  This was the smallest shipment taken by them since last year.

      July soybeans peaked at 1453.25 on Tuesday and backed off to 1416.75 Wednesday.  If you will notice on the chart, the market has risen beyond the upper boundary of the channel line, which has now become support.  A close beneath it, however, is a sign the market is topping.  In the meantime, the pullback resembles a correction and, if so, increases the chance for climbing slightly past the contract high made in August at 1470.75.  Meanwhile, all bets for this happening are off if 1416.75 cannot hold.  Keep in mind that the funds are holding a record long position and for them, commodities are purely a money game.  Nearly 60 percent of the volume in soybeans stems from activity by the funds and high frequency traders.  Next week, the odds are even as to whether July futures will be higher or lower. 

 Wheat Outlook:

     Traders got friendly surprise in wheat when the USDA reduced 2011-12 ending stocks 32 MB from March to 793 MB.  In addition, world stocks fell 1.4 percent.  The reduction was attributed to more wheat finding its way into feed rations.  Meanwhile, global stocks are considered ample.  The winter wheat crop is improving as 61 percent is rated in good-to-excellent condition, up 3 percent from the previous week.  Spring wheat planting is off to a fast start at 21 percent complete compared to the average of 5 percent.  Export inspections were disappointing at 17.6 MB and below the average needed to reach USDA’s projection of 1.0 BB.  In other developments, the trend following funds increased their short futures position 15 MB to 400 MB.  The index funds are long 1.085 BB.    

     July wheat fell to 626.75 on Wednesday and has established a double bottom with last month’s low at 626.25.  Short-term, we are due for a rebound to 653-660.  Seasonally, wheat futures generally trend lower until the end of April followed by a recovery into early May.  Longer-term, the market is at risk for a sell off to 555.  Next week, the odds are even as to whether July wheat will be higher or lower.

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Comments and suggestions are provided for information purposes only. Information contained herein is obtained from sources believed to be reliable but not guaranteed to its accuracy or completeness. Readers using the information contained herein are responsible for their own actions. No presentations can be made that recommendations will be profitable or that they will not result in losses. This information is neither an offer to sell nor solicitation to buy of the commodity futures mentioned herein. The writer may be trading in the commodities mentioned.


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