On The Money Grain Commentary 5-10-12

Expectations for increased production and an early harvest is pressuring new crop corn while reducing concerns of tight old crop stocks.  Planting is progressing swiftly at 71 percent complete compared to 47 percent for the norm.  Many of the major producing states are running 40 percent ahead of their average.  The first glimpse of USDA’s estimate for the 2012-13 crop shows ending stocks at 1.881 BB, which was above trade guesses.  USDA increased their yield projection to 166 bpa from 164 bpa in the February Outlook Forum.  Meanwhile, we will not have a good handle on production prospects until the acreage report on June 30th.  In other developments, the trend following funds added 60 MB to their long futures position increasing it to 315 MB. 

     July corn has fallen since peaking on Tuesday at 632 and broken key support at 591.  Since last fall, the market has traded in a range with strong support at this low.  However, it failed on Thursday because of the bearish report and we are likely headed to a target mentioned in previous comments at 545.  Meanwhile, short-term support is expected at 582.  From a seasonal perspective, corn futures tend to work lower until late May followed by a recovery into June.  Cycle analysis points to a bottom on May 17th or May 29th.  Resistance is expected on a rebound to 598 followed by 606.  Next week, the odds are 80 percent that July corn will be lower.   

Bean Outlook:

      The first glimpse of the 2012-13 soybean crop shows USDA projecting ending stocks at 145 MB.  If realized, this will be the smallest ending stocks since 2003-4.  However, consideration must be given to the fact that when USDA took the survey many producers were exchanging their seed corn for soybeans because of the increase in profitability.  This suggests that planted acres will be higher in the June 30th report than the current projection of 73.9 million.  In other developments, the long position of the trend following funds has grown to a record 1.125 BB.  With the worsening financial situation in the Euro zone, a position of this magnitude poses a serious problem in the event the funds liquidate seeking a safer haven.        

     July soybeans bottomed on Wednesday at 1413.25 holding key support at 1409.5.  The slide from the high made earlier this month at 1512.5 has likely ended and, if so, a rebound to 1462 and probably closer to 1474 can be expected during the next five days.  For now, a close beyond 1487 is needed for confidence of trading to a new high.  The chance of it happening is 50 percent.  In the event, look for prices climbing to 1550 or 1570 with a top occurring on May 21st or May 28th.  In the meantime, a pullback below 1436 forewarns that support at 1413.25 is unlikely to hold.  Its failure breaks the uptrend as a lower low and a lower high have occurred.  As I have mentioned in previous comments, the long-term continuation chart shows that we are in the mature stage of the advance that began in 2008.  Next week, the odds are 70 percent that July futures will be lower. 

 Wheat Outlook:

     There is little bullish news in wheat amid improved growing conditions and the prospect for an early harvest.  Currently, 63 percent of the crop is rated in good-to-excellent condition, down one point from a week ago but up from 35 percent a year ago.  Spring wheat planting is progressing quickly at 84 percent complete compared to the average of 49 percent.  USDA raised their all wheat production estimate to 2.245 BB, an increase of 246 MB from 2011.  Ending stocks for 2012-13 are projected at 735 MB, which was less than traders expected.  In other developments, the trend following funds covered 80 MB of their short position last week reducing it to 345 MB.

     July wheat rebounded to 621.25 on Tuesday and has since fallen below last week’s low at 599.5.  Unless there is a rebound past Tuesday’s high, the market is on track for a sell-off to a longer-term target at 555 or possibly lower.  Seasonally, wheat futures tend to move downward until the first week of July before establishing a harvest low.  Currently, the cycles point to a bottom occurring on June 15th or June 22nd.  Next week, the odds are 80 percent that July wheat will be lower.

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