On The Money Grain Commentary 4-21-16

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Corn Outlook:

The strength is corm is mostly coming from fund buying in soybeans. However, it does have merits of its own. One is that dryness in central Brazil the past few weeks has lowered yield expectations for their second crop corn. Second, U.S. exports have picked up with inspections last week at 42.8 MB. This was the third consecutive week that they have been above 40 MB and improves the chance of reaching USDA’s target of 1.650 BB. These factors have resulted in the funds cutting back on their short position as they reduced it 175 MB last week to 905 MB. Additional liquidation could occur, especially with the growing season ahead. In the meantime, the planters are rolling with 13 percent of the crop in the ground compared to 7 percent a year ago and 8 percent for the average.

Bean Outlook:

The buzz circulating throughout the grain trade is the persistent strength in soybeans. Much of it is attributed to last month’s planting report showing fewer acres and more corn. However, the rally is currently taking acres away from corn as producers inform me that the 100-300 acres they had up for grabs earlier this season will go to soybeans. Other reasons given to their vigor are excessive wet conditions in Argentina reducing yields, lower estimates for Brazil’s crop, strength in the Brazilian Real, and La Nina possibly impacting yields in the Midwest this season. While all of these issues may have a played a part in the rally, could there be another reason as other commodities have risen as well? Could this be a last ditch effort orchestrated by the Fed to inflate the economy? This would be hard to trace. Just food for thought! Be aware that the long position of the trend following funds has grown to 365 MB, while the index funds are sporting a long of 760 MB. This is a grand total of 1.125 BB! As mentioned in a previous comment, when the index funds amassed a position of this size in July 2012, the market eventually plummeted 23 percent in value. Long story short, bullish news has been dialed in the market, and we need to see proof in the pudding for the funds to stay engaged . In other developments, export inspections were mediocre at 9.4 MB last week, but are on track to reach USDA’s projection of 1.705 BB.

Wheat Outlook:

The factor supporting wheat is the strength in soybeans and the fact that the funds are short a record 765 MB. Recent showers in the southern Plains came at an opportune time as the crop is heading. This leads to the crop rating rising one point to 57 percent in good-to-excellent condition, and compares to 42 percent a year ago. Export inspections were better than expected at 16.7 MB, but must average 18.2 MB each week to reach USDA’s target of 775 MB. This is a tall order. Although the fundamentals are negative, fund short covering seems to be the order of the day.

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