On The Money Grain Commentary–5-26-11

Corn Outlook:

     Grain futures are having to cope with the sovereign debt crisis in Europe as it relates to commodities, and weather.  Recently, the debt ratings of Greece and Italy were downgraded which is bearish for commodities.  In the meantime, producers in the eastern Corn Belt are struggling to plant corn, which is bullish as stocks are at a 15-year low.  As of last week, 79 percent of the crop was planted compared to the five-year average of 87 percent.  Indiana, Michigan, North Dakota and Ohio are well behind their average.  Ohio is behind the most at only 11 percent planted.  These states comprise 14.6 million acres, or 15 percent of the U.S. crop.  In other developments, export inspections were 35.8 MB.  The trend following funds have reduced their long corn position 60 MB to 1.130 BB, while the longs of the index funds have fallen 40 MB to 1.9 BB. 

     July corn traded to 775 on Monday, which is a short-term top that ended the rally from the low made earlier this month at 659.  On Tuesday, a pullback to 726.75 offered support.  However, there could be a decline to 717 before the setback is over.  Short-term resistance is at 760.  Longer-term, the wave pattern points to prices climbing to 840.  Cycle analysis shows that this could happen during the period of June 27th-July 1st.  This coincides with the planted acreage report due on June 30th.  Historically, corn futures trade lower in June 68 percent of the time.  Next week, the odds are even as to whether July corn will be higher or lower.    

Bean Outlook:

        Not only has wet weather been a problem for planting corn, but it has been an issue for soybeans as well.  As of last week, 41 percent of the soybean crop was planted compared to the five-year average of 51 percent.  Ohio is running 50 percent behind its average.  Meanwhile, acres flooded in the Southeast along the Mississippi River may stay idle if producers opt to collect their crop insurance.  In other developments, export inspections were 7.7 MB with China taking a token 62,000 bushels.  During the next few months, their interests will be focused on record supplies in South America.  The trend following funds have reduced their long soybean position 30 MB to 250 MB, while the longs of the index funds has fallen 25 MB to 800 MB.    

     July soybeans continue to trade in a broad trading range from 1278-1442.25.  There was a rebound to 1398.25 on Thursday where resistance was encountered.  Support is expected on a setback to 1350.  As you notice on the chart, the market is in a wedge type pattern.  When the breakout occurs, the chances are that it will be substantial.  This should happen by June 2nd.  Right now, a close beyond 1402.5 is needed to verify that an upside breakout is getting under way.  In this event, look for a rally above the contract high at 1474.5.  Historically, soybean futures trade lower in June 63 percent of the time.  Next week, the odds are even as to whether the market will be higher or lower.

 Wheat Outlook:

      Wheat is a tale of two crops.  Dry weather is affecting the crop in the southern Plains, while wet conditions hinder planting spring wheat in the north.  As of last week, only 54 percent of the spring wheat crop was planted compared to 89 percent for the five-year average.  Meanwhile, 32 percent of the winter wheat crop is rated in good-to-excellent condition, which is unchanged from a week ago and compares to the rating of 66 percent last year.  Export inspections were 30.1 MB with shipments on track to meet USDA’s projection of 1.275 BB.  The short position of the trend following funds has risen to 120 MB, which puts them in a precarious spot if crop problems persist in the U.S. and Europe.          

     After topping last week at 834.5, July wheat fell to 777.5 on Monday and turned up.  If this is the end of the correction, we are in a position for a move higher that challenges last month’s high at 865 with the potential for a rally to 900.  Although this is counter seasonal to the longer-term pattern that points to a decline in July, there is frequently a bounce from the end of May until mid June.  Watch for a top on June 2nd or June 6th unless we break this week’s low.  Historically, wheat futures trade lower in June 74 percent of the time.  Next week, the odds are 80 that July wheat will be lower.       

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