On The Money Grain Commentary–5-12-11

Corn Outlook:

     Corn futures have been tarred and feathered this month because of fund selling.  Estimates are that the funds took $100 million off the table during the onslaught of selling in commodities during the first week of May.  The trend following funds sold 185 MB of corn during that time reducing their long position to 1.365 BB.  The longs of the index funds stand at 2.010 BB.  Meanwhile, corn suffered another blow this week when USDA raised 2010-11 ending stocks to 730 MB from 675 MB in April.  Ending stocks for 2011-12 are forecast at 900 MB.  The report shows that rationing is occurring.  Corn planting is progressing at a snail’s pace and is only 40 percent done compared to the five-year average of 59 percent.  While progress is being made in the west, planting in Indiana, Michigan, North Dakota and Ohio is at a virtual standstill.  

     July corn fell sharply this week finding support at the gap left in March at 660-653.75.  If the sell-off has ended, a recovery to 725 or 740 is likely with a top occurring during the last week of May.  Later, there is a chance of moving lower to 630 or 580.  Since January, it has been mentioned that the corn market and the CRB Index were in the advanced stage of their long-term rally in which a multi-month or multi-year high could occur.  This appears to be the case and, if so, commodities could decline for the next four months, possibly much longer.  If a multi-year high has developed and the long only funds jump ship in commodities, corn could lose 43-48 percent to a much as 68 percent of its value.  Next week, the odds are 80 percent that July futures will be lower.

Bean Outlook:

       Soybean futures are stagnant because of a record harvest in South America and cooling demand for U.S. soybeans.  This is evident from China being a no show in the export market for the second straight week.  Prices are also pressured from the sell-off in corn.  Planting is off to a slow start and is 7 percent complete compared to the five-year average of 17 percent.  USDA currently projects 2010-11 ending stocks of soybeans at 170 MB compared to 140 MB in April.  Ending stocks for 2011-12 are forecast at 160 MB.  In other developments, the trend following funds have trimmed their long position 40 MB to 365 MB, while the index funds are long 835 MB.

      July soybeans have been trading in a sideward pattern since peaking at the contract high in February at 1474.5.  Prices bottomed last week at 1306.5 and have since rebounded.  Look for resistance is at 1365-1375 followed by 1402.  A rally past this level is needed to turn the intermediate-term trend higher.  Meanwhile, if last week’s low cannot hold, the chances are that a downside breakout is occurring and we will fall below the low made in March at 1278.  This event turns the long-term trend down, as it constitutes a lower low and a lower high from 1442.25.  If it happens, prices will likely erode to 1240, 1200 or 1170.  Meanwhile, if a multi-year peak has occurred in soybeans as the CRB Index suggests, they could lose 39-44 percent to as much as 55 percent of their value.  Next week, the odds are 70 percent that July futures will be lower.    

 Wheat Outlook:

      Dryness continues to plague the southern Plains and Europe.  It is estimated that France and Germany may have lost 15-20 percent of their production.  In the U.S., the crop rating fell one point to 33 percent in good-to-excellent condition.  Meanwhile, spring wheat planting lags at 22 percent complete compared to the five-year average of 61 percent.  USDA currently projects 2010-11 ending stocks of wheat at 839 MB, unchanged from last month.  Ending stocks for 2011-12 are forecast at 702 MB.  While production problems are a concern, the bearish corn report is weighing on wheat.  In other developments, the short position of the trend following funds has grown 25 MB to 40 MB, while the index funds are long 1.085 BB.   

     July wheat rallied to 816.5 on Tuesday but has since tumbled to 728.5 breaking support at 740.  Be advised that there is a strong seasonal tendency for a move lower until the first week of July.  This suggests that prices are at risk for a decline to 680, 615 or 605 unless this week’s high is exceeded.  Resistance is expected on a bounce to 772-782.  Cycle analysis points to the market being on the defensive until the last week of May or the first week of June.  If a multi-year peak has developed in wheat, it could lose 49-51 percent to as much as 70 percent of its value.  Next week, the odds are 80 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.