On The Money Grain Commentary 4-26-12

Corn Outlook:

     Corn planting is progressing at breakneck speed in the eastern Corn Belt but lags in the west because of wet conditions.  Overall, twenty-eight percent of the crop is in the ground compared to the average of 15 percent.  Illinois is 42 percent ahead of its average while Iowa lags by 7 percent.  However, warmer weather is forecast and should allow the west to catch up.  Nine percent of the crop has emerged compared to the average of 2 percent, which favors an above trend line yield.  In other developments, export inspections were 29.3 MB and below the average needed to reach USDA’s projection of 1.7 BB.  Sales of 600,000 tons were reported to China but had little impact on prices as they were expected.  The trend following funds seem to be losing some of their bullish appetite for corn as they shed 120 MB of their long position last week reducing it to 480 MB.   

     July corn rebounded to 621.75 on Tuesday, which appears to be a countertrend move in a longer-term decline.  A rally past this level is needed to turn the short-term trend up and, if it occurs, we could bounce to 626-633.  Be alert for a top during the period of April 30th-May 2nd if prices are higher.  Otherwise, the trend is down and a decline below 591.75 constitutes a breakout of the trading range that has been ongoing since last fall.  In this event, look for a sell-off to 545.  Since early April, the July-December spread has fallen over 40 cents, which does not bode well for sustained price strength.  Historically, during May, corn futures are higher 52 percent of the time.  Next week, the odds are even as to whether July corn will be higher or lower.        

Bean Outlook:

       Fund buying has been the driving force in soybeans since December with the long position of the trend following funds reaching a record 1.050 BB.  From February through March, their longs increased at a rate of 105 MB per week.  However, during the past two weeks, it has slowed growing only 10 MB per week.  This is a warning that we are reaching a level in which it may be time to pull in the horns.  In other developments, reports of frost in Argentina are keeping the fire light in old crop.  Soybean planting has begun and off to a quick start at 6 percent done compared to 2 percent for the average.  Export inspections were below estimates at 12.0 MB with China taking 6.6 MB or 55 percent of shipments.  Shipments taken by them have declined for the past three weeks.     

      July soybeans traded to 1496.75 on Wednesday exceeding a target mentioned in last week’s commentary at 1480.  The market backed off from this level creating a candlestick top.  Right now, divergence is showing between the momentum indicators and the rise in prices during the past few sessions, which forewarns of a pending top.  However, the trend is up provided we do not close below 1439.  Unless this occurs, one pattern shows the market rising to 1515, which should wrap up the advance from the December low at 1125.25.  This could occur on May 3rd or during the period of May 7th-9th.  Be advised that the longer-term chart shows that when prices peak, the chances are it will be a major top ending the advance beginning in 2008.  Historically, during May, soybean futures are down 52 percent of the time.  Next week, the odds are 60 percent that the July contract will be higher.    

 Wheat Outlook:

      Cool temperatures in the Midwest and Plains have underpinned wheat futures, although prices are mostly following corn.  Growing conditions are favorable while some freeze damage is reported in areas of the Midwest.  Last week, 63 percent of the crop was rated in good-to-excellent condition, which is down one point from a week ago and compares to last year’s rating of 35 percent.  Spring wheat planting is rolling at a fast pace and 57 percent complete, well ahead of the average of 19 percent.  Export inspections were above estimates at 24.9 MB and the average needed to reach USDA’s projection of 1.0 BB.  While prices have strengthened recently, the trend following funds short position has risen to a record 485 MB.  Meanwhile, the longs of the index funds has grown to 1.130 BB, which is 15 MB short of their record.

     July wheat rebounded to 647 on Tuesday, which appears to be a short-term top.  So far, the pullback resembles a correction suggesting that we could work upward to 653 before the recovery from the low made earlier this month at 609.25 is complete.  Be alert for a top as soon as April 30th or on May 7th if we are higher.  Longer-term, the trend is down unless there is a rally past 680 with the potential for a sell-off to 555 or lower.  Historically, during May, wheat futures are down 58 percent of the time.  Next week, the odds are even as to whether the July contract 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.