On The Money Grain Commentary 4-5-12

Corn Outlook:

      Concerns about tight supplies and optimism of increasing demand from China are underpinning corn futures.  Meanwhile, export inspections were nothing to write home about at 30.9 MB and below the average needed to reach USDA’s projection of 1.7 MB.  Since December, shipments have been slipping and must rise 7.5 percent in order to meet their target.  The early spring has caused planters to roll in much of the Corn Belt as 3 percent of the crop is planted compared to the average of 2 percent.  Look for a greater rate of progress next week.  While the USDA expects 95.9 million acres of corn to go in the ground in 2012, the sharp rally in soybeans will likely shave this number.  In other developments, the trend following funds reduced their long futures position 190 MB last week trimming it to 795 MB.  The index funds are long 1.995 BB.   

     July corn bottomed last week at 603 and rose sharply to 659.75 on Tuesday.  If you will notice on the chart, the market remains within a trading range that has been ongoing since last fall.  Short-term, prices are overbought with support likely on a pullback to 638, 631 or 625.  Unless there is a bullish surprise in the supply-demand report on April 10th, we will likely continue to trade within the boundary of the existing range.  In the meantime, a rally past 673.25 creates a more bullish pattern and increases the chance of rising to 690.  Next week, the odds are 55 percent that July futures will be lower.

Bean Outlook:

       Soybean futures have risen to their highest level since September and seem bulletproof.  Exuberance has reached a fever pitch level as the sentiment index shows that 86 percent of traders are bullish.  Meanwhile, the long position of the index funds has grown to a record 915 MB.  This suggests that even though the fundamentals are positive, a continuous dose of bullish news is needed to fan the flame.  Although the USDA projects smaller plantings of 73.9 million acres, their survey was taken in early March and, since then, the price ratio between corn and soybeans has risen from 2.0 to over 2.5.  This will encourage last minute switching to more soybeans.  How much, we will not know until the acreage report on June 30th.  In other news, export inspections were 28.8 MB with China taking 18.2 MB or 63 percent of the shipments.        

     July soybeans turned up from 1356 last week and rallied sharply to 1439.25 on Monday.  If you will notice on the chart, the market has crossed the upper boundary of the channel line.  Caution is warranted because when this situation occurs, a top frequently develops afterward.  Meanwhile, the trend is up unless support at 1412.75 is broken.  A rally past 1439.25 projects a move upward to 1455 or 1482 with a top occurring on April 13th or April 17th.  Be advised that the advance from the low made in December at 1125.25 is in its mature stage.  Next week, the odds are 70 percent that July futures will be lower. 

 Wheat Outlook:

     Wheat futures are struggling because of improved growing conditions and gains in the dollar.  In their first crop rating of the season, the USDA shows that 58 percent of the wheat crop is in good-to-excellent condition compared to 52 percent last fall.  Meanwhile, 8 percent of the spring wheat crop is planted versus the average of 2 percent.  Export inspections were anemic at 15.3 MB and below the average needed to reach USDA’s projection of 1.0 BB.  However, the overall pace of shipments is in line to meet their target.  In other developments, the trend following funds liquidated 20 MB of their short position last week reducing it to 385 MB.  The index funds are long 1.085 BB.      

     July wheat peaked on March 30th at 680 and has since fallen.  Unless 680 is exceeded, the trend is sideways to lower.  Seasonally, wheat futures usually trend downward until the end of April followed by a rebound into early May.  A decline below 626.25 constitutes a downside breakout of the trading range and projects a sell-off to 555.  In this event, cycle analysis points to a low occurring on April 18th, April 23rd or May 4th.  Next week, the odds are 60 percent that July futures 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.