On The Money Grain Commentary–5-19-11

Corn Outlook:

     Grain producers are still plagued with cool, wet weather and late planting.  As of last week, 63 percent of the corn crop was planted compared to 75 percent for the five-year average.  The western Corn Belt is making good progress, but North Dakota, Minnesota, Indiana and Ohio are far behind.  This is worrisome as yield potential declines after mid May and stocks are already at a 15-year low.  While this is supportive to corn futures, large institutional traders have recently reduced their exposure to risk oriented investments.  Last week, the trend following funds trimmed their long corn position 175 MB reducing it to 1.190 BB.  The longs of the index funds fell 70 MB to 1.940 BB.  In other developments, export inspections were 36.9 MB and below the average needed to reach USDA’s projection of 1.9 BB.    

     Last week’s comments mentioned that when July corn bottomed at 659, it was due for a recovery to 725 or 740.  Prices rebounded to 760.25 on Thursday exceeding this level by an impressive margin.  Will we trade to a new contract high?  The wave pattern shows that an irregular type correction may have developed from the March high at 745 and the contract high at 788.75.  If this is the pattern unfolding, there could be a rally to 840 with a top developing during the last week of May or the first week of June.  Right now, a close past 760.25 is needed for confidence this is the event that is unfolding.  Otherwise, a sell-off below 710 means that an overextended correction from 659 has occurred instead.  This should be resolved within the next couple of days.  Next week, the odds are even as to whether July corn will be higher or lower.

 Bean Outlook:

         While traders are concerned about planting delays for corn and spring wheat, flooding in Southeast could mean lost acres for soybeans as well.  By the time the floodwater recedes, producers may opt to claim their insurance leaving many acres idle.  As of last week, 22 percent of the soybean crop was planted compared to the five-year average of 31 percent.  Export inspections were a marketing year low at 5.1 MB with China being a no show for the third consecutive week.  When commodities were hammered last week, the trend following funds liquidated 85 MB of their long soybean position reducing it to 280 MB.  The longs of the index funds fell 10 MB to 825 MB.

      July soybeans have broken to the upside from their short-term trading range of 1306.5-1359.75.  Prices rallied to 1389 on Thursday but are still confined in the broader range from 1278-1442.25.  Right now, a close past 1402.5 is needed to turn the intermediate-term trend higher and confirm that an upside breakout is getting underway.  In this event, the chances improve for trading past the contract high at 1474.5.  Otherwise, there is a strong seasonal trend for a move lower until the end of May and the first week of August.  However, the seasonal patterns are not as reliable today as they were a few years ago because of the fund involvement.  Be advised that a decline below 1306.5 turns the longer-term trend down.  Next week, the odds are 78 percent that July futures will be lower.

 Wheat Outlook:

     While Europe and the southern Plains are contending with dry conditions and planting is behind in the northern Plains, wheat futures have been slow to respond.  This is because of recent selling in commodities by the funds.  Last week, the trend following funds increased their short position 15 MB to 55 MB, while the index funds liquidated 35 MB reducing their longs to 1.050 BB.  However, the strength this week may force the funds to cover their shorts.  In other developments, the crop deteriorated one point to 32 percent in good-to-excellent condition.  Meanwhile, spring wheat planting lags at 36 percent complete compared to the five-year average of 76 percent.  Export inspections were in line with estimates at 30.0 MB.

     July wheat has risen past resistance at 816.5 to 834.5 on Thursday.  This opens the door for challenging last month’s high at 865 with the possibility for a rally to 900.  Look for a top as soon as the first week in June in this event.  Be advised that this is counter to the seasonal tendency for a move lower until the first week of July.  If there is a close below 782, however, the chances for a rally to the mentioned targets are diminished.  Next week, the odds are even as to whether July wheat 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.