On The Money Grain Commentary–4-21-11

Corn Outlook:

     Anymore, normal is merely a setting on a washing machine!  Gone are the days when traders looked exclusively at weather, supply and demand for a direction in the grains.  Today, they must be aware of the macroeconomic situation and political developments.  This week, Standard & Poor lowered their rating on the U.S. from stable to negative, which increases the chance of our bonds losing their AAA rating.  In this event, interest rates will rise and pressure commodities.  Right now, traders are occupied with weather.  Planting is off to a slow start at 7 percent complete compared to 16 percent a year ago and 8 percent for the five-year average.  Export inspections were lethargic at 32.1 MB and below the average needed to reach USDA’s projection of 1.950 BB.  Meanwhile, the trend following funds are becoming more bullish as they increased their long position 165 MB to 1.495 BB, while the longs of the index funds grew 25 MB to 1.970 BB.        

     July corn fell to 736 this week breaking support at 741.  The correction from 788.75 is taking longer than expected, and we may work into the gap at 731.  However, the longer-term trend is still up and once the pullback is over, prices have the potential of trading higher to 810 with a more bullish pattern pointing to 825 or 840.  This is contingent upon holding 705.  Unless it fails, cycle analysis shows a top developing on May 2nd or May 9th which has the potential of ending the advance from the contract low at 374.5.  Be advised that the longer-term pattern of the corn market reveals that we are in the advanced stage of the rally from the 2009 low in which a multi-month or a multi-year top is likely.  In addition, the pattern on the CRB Index points to a major top occurring in commodities during May, June, and no later than October.  Next week, the odds are even as to whether July corn will be higher or lower.    

Bean Outlook:

            Soybean futures are stabilizing as slow cash movement caused by planting in the Midwest has offset the harvest of a record crop in Brazil.  The delay in corn planting because of wet weather is increasing ideas that more acres will be switched to soybeans.  Meanwhile, China has raised their reserve requirement in an effort to tame inflation, and is curtailing their appetite for soybeans.  Inspections last week were 14.2 MB, the smallest shipment since late September.  China only took 4.8 MB or 34 percent of the shipments.  In other developments, the long position of the index funds fell 115 MB to 380 MB, while the longs of the index funds dropped 15 MB to 790 MB.        

      July soybeans have turned up since bottoming last week at 1328.25.  As it stands now, the decline from last month’s high at 1442.25 is probably over.  Historically, there is a 71 percent chance that it will be exceeded and, if so, raises the potential of challenging the contract high at 1474.5.  To increase the odds of this happening, a close beyond 1415 is needed.  From a seasonal perspective, soybean futures generally trend higher until the first or second week of May.  Cycle analysis shows that a top could occur on May 3rd or May 9th.  Next week, the odds are even as to whether July futures will be higher or lower.

  Wheat Outlook:

     Wheat has emerged as the fair-haired child of commodities again because of increased dryness in the Plains and areas of China and Europe.  Liquidation of long corn and short wheat spreads has been supportive.  Last week, the crop ratings slipped one point to 36 percent in good-to-excellent condition.  The crop in the Midwest is improving, but the Plains continue to deteriorate.  Meanwhile, spring wheat planting is behind at 5 percent complete compared to 18 percent a year ago and 12 percent for the five-year average.  Export inspections were in line with estimates at 35.7 MB and above the average needed to reach USDA’s projection of 1.275 BB.  In other developments, the trend following funds are short 30 MB, while the index funds are long 1.090 BB.

     July wheat rallied to 843.75 on Wednesday, which exceeded last week’s high at 843.25.  Last week’s comment mentioned that there was an 85 percent chance of trading past this level.  Prices pulled back to 815.5 on Thursday and have additional support at 805.  Unless there is a close below 785, a rally past 843.75 projects a move higher to 890 or 915.  Seasonally, wheat futures generally trend higher until the first week of May.  Cycle analysis shows that a top could occur on May 2nd or May 11th.  Next week, the odds are 70 percent that July wheat will be 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.