On The Money Grain Commentary–4-28-11

Corn Outlook:

     Grain producers have been dodging raindrops all month in an effort to plant corn.  So far, Mother Nature is winning the battle as only 9 percent of the crop is planted compared to 46 percent a year ago and 23 percent for the five-year average.  Conditions are expected to stay soggy in the east but turn drier in the west.  Because of the delay, the trend following funds recently added 75 MB to their long position increasing it to 1.570 BB.  This is short of the record they held last October at 1.860 BB.  The longs of the index funds stand at 1.960 BB.  Prices tumbled on Thursday from the forecast of improving weather in the west and end of the month selling by the funds.  In other developments, export inspections have slowed at 33.2 MB and are below the average needed to reach USDA’s projection of 1.950 BB.  Look for traders to stay focused on planting the next couple of weeks, as additional delays will exacerbate a tight stocks situation.          

     July corn traded to 777.25 on Tuesday and fell the 30-cent limit to 729.25 on Thursday for a decline of 6.0 percent.  So far, the sell-off from the contract high at 788.75 still resembles a correction.  However, a close below 722 jeopardizes the chance for advancing to the longer-term targets at 810, 825 or 840.  Historically, the odds are 62 percent that we will trade to a new contract high.  Right now, a rally past 757 is needed to restore the short-term uptrend.  During May, corn futures are higher 52 percent of the time.  Next week, the odds are even as to whether July futures will be higher or lower. 

Bean Outlook:

            While inflationary concerns are supportive for soybeans, the market is bumping heads with a record harvest in Brazil, China cutting back on imports, and the potential for more acres switched from corn because of planting delays.  Export inspections last week were a dismal 8.3 MB, the smallest shipment since last September.  China took only 2.3 MB or 28 percent of the shipments.  Meanwhile, there is speculation that they will increase rates again in an effort to curb inflation.  In other developments, the trend following funds are lightening their load as they recently trimmed 60 MB from their long position reducing it to 320 MB.  The longs of the index funds stand at 785 MB.      

     July soybeans traded to 1400.5 on Thursday and turned down.  Since late March, the market has traded in a range from 1442.25-1328.25.  Support is likely on a pullback to the up trend line at 1340.  Unless there is a close below 1328.25, there is a 71 percent chance of trading past the March high at 1442.25.  In this event, it increases the potential of challenging the contract high 1474.5.  During May, soybean futures close lower 52 percent of the time.  Next week, the odds are 60 percent that July soybeans will be higher.

Wheat Outlook:

     Conditions are getting worse for wheat as the crop rating deteriorated one point to 35 percent in good-to-excellent condition.  Only five percent of the crop in Oklahoma is rated in the good-to-excellent category.  In addition, the northern Plains has struggled from wet weather as only 6 percent of the spring wheat crop is planted compared to 39 percent a year ago and 25 percent for the five-year average.  Meanwhile, the price action this week was a bummer considering the positive developments.  Export inspections were 28.0 MB and below the average needed to reach USDA’s projection of 1.275 BB.  The trend following funds are short 30 MB, while the index funds are long 1.070 BB.

     July wheat rallied to 865 on Monday, which was followed by a 10.7 percent decline to 772 on Thursday.  If you notice on the chart, prices broke the up trend line from the March low at 691.  Seasonally, we do not usually peak until the first or second week of May.  From here, the trend turns down until the first week of July.  This week’s sharp decline suggests that the market has peaked early.  Look for support to develop at 765-755.  Short-term, prices are oversold and due for a rebound to 820.  Right now, a close beyond 843 is needed for increasing the chance of climbing past 865.  Otherwise, the market is at risk for a decline to the March low at 691.  During May, wheat futures are down 58 percent of the time.  Next week, the odds are even as to whether July wheat will be higher or lower.   

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