On The Money Grain Commentary 5-24-12

Corn Outlook:

     Corn values rose 12.6 percent from their lows made earlier this month on the coattails of the surge in wheat.  However, since then, the market has turned stone cold, as growing conditions are favorable in most of the Midwest.  Meanwhile, there are rumors of China switching old crop corn purchases to new crop and concerns are rising again regarding Europe.  Currently, 77 percent of the crop is rated in good-to-excellent condition, the fifth highest rating in over twenty years.  Seventy-six percent of the crop has emerged compared to the average of 48 percent.  At this rate, unless Mother Nature decides otherwise, we are facing the prospect of record production in 2012-13 with ending stocks at 1.6-1.8 BB.  In other developments, export inspections were disappointing at 23.2 MB and below the average needed to reach USDA’s projection of 1.7 BB.  Last week, the trend following funds whacked 190 MB from their long futures position reducing it to 145 MB.        

     July corn peaked on Monday, May 21st at 644.5 followed by a swift sell-off to 588.5 on Wednesday.  Last week’s comments mentioned that a top could occur during the period of May 21st-23rd.  Prices rebounded to 609 on Thursday but turned down and fell through Wednesday’s low.  Longer-term, nothing has changed as the market continues to trade within in the range that has been ongoing since last fall.  A rally past 644.5 is needed to turn the trend from sideways to higher.  Otherwise, a break below the low made earlier this month at 572.25 turns the trend down and projects a sell-off to 545 or lower.  During June, corn futures are down 68 percent of the time.  Next week, the odds are even as to whether July futures will be higher or lower.

Bean Outlook:

      Soybean futures have been fighting an uphill battle of late even though stocks are tight.  The reason is fund liquidation.  Last week, the trend following funds unloaded 80 MB of their long futures position reducing it to 925 MB.  This is down from the record made a couple of week’s ago at 1.125.  Prices will have difficulty gaining ground if there is additional liquidation.  Meanwhile, adding to weakness are rumors of China canceling purchases.  In other developments, 76 percent of the soybean crop is planted compared to 42 percent for the average.  Thirty-five percent of the crop has emerged which is above 13 percent for the average.  The fast pace in planting and early wheat harvest suggests that additional acres are likely.  Export inspections were disappointing at 12.6 MB with China taking 7.0 MB or 55 percent of shipments.    

      It has been downhill for July soybeans since they peaked last week at 1449.75.  Prices fell to 1351 on Wednesday, which broke the upward sloping trend line from the low made last December at 1125.5.  Unless we trade past Thursday’s high at 1387.75, the market is in a position to work downward to 1328 before the sell-off from 1449.75 and the contract high at 1512.5 are over.  Look for a bottom on May 29th if prices are lower.  Meanwhile, if 1387.75 is exceeded, a recovery to 1400 or 1412 is expected.  However, the chances for a rally beyond the contract high at 1512.5 are slim.  Historically, soybean futures are down 63 percent of the time during June.  Next week, the odds are even as to whether July soybeans will be higher or lower. 

 Wheat Outlook:

     Wheat futures leaped an astonishing 21.9 percent during five trading sessions recently.  The reason behind the jump was from the unwinding of long corn versus short wheat spreads and liquidation of the massive short position held by the funds.  However, the sizzle has fizzled and prices have since backed off, as the surge was overdone.  Last week, the crop rating fell 2 percent to 58 percent in good-to-excellent condition.  This compares to 32 percent reported in the good-to-excellent category a year ago.  Meanwhile, harvest has begun and 3 percent complete.  Unless yields are disappointing, prices will struggle to advance further.  Export inspections were better than expected at 24.8 MB.

     July wheat surged from 592.25 last week to 722 on Monday, May 21st and has worked lower since.  Last week’s comments mentioned that a top could occur during the period of May 22nd-24th.  Short-term resistance is expected on a bounce to 685 followed by 700.  For the intermediate-term, prices are likely headed to 642.  Failure of the low at 592.5 projects a break to 555.  Seasonally, wheat futures generally trend lower until the first week of July.  Cycle analysis points to a low occurring on June 29th or July 6th.  During June, wheat prices are down 74 percent of the time.  Next week, the odds are 80 percent that July wheat 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.