On The Money Grain Commentary 5-3-12

Corn Outlook:

      Racing at the Kentucky Derby may be the best way to illustrate corn planting.  A couple of weeks ago, Iowa was 7 percent behind its average but, as of last week, they surged 18 percent ahead while Illinois and Indiana are up 50 percent.  Nationwide, planting is 53 percent complete compared to 27 percent for the norm.  This is over one week ahead of schedule.  Fifteen percent of the crop has emerged which is well ahead of the average of 6 percent.  These conditions suggest that unless Mother Nature decides otherwise, an above trend line yield is eminent.  In the meantime, old crop corn stocks remain tight.  Export inspections were 24.9 MB and below the average needed to reach USDA’s projection of 1.7 BB.  The trend following funds shed 120 MB of their long position last week reducing it to 250 MB.  Meanwhile, the index funds added 20 MB to their longs increasing them to 2.040 BB.     

     July corn peaked on April 30th at 634.75 and has since fallen to 607.5.  Last week’s comments mentioned that a top could occur at 633 around that time.  Short-term, the market is due for a bounce to 622-625.  Getting past 634.75 may be a difficult task although it cannot be ruled out.  Seasonally, corn futures tend to peak early to mid May and work lower until the end of the month followed by a rebound into June.  A rally beyond 673.25 is needed to turn the longer-term trend higher.  Otherwise, we are likely to stay in the trading range that has been ongoing since last fall.  Meanwhile, a decline below 591.75 constitutes a downside breakout and projects a sell-off to 545 or lower.  Next week, the odds are even as to whether July corn will be higher or lower.       

Bean Outlook:

       Soybean futures have been trekking higher on the outlook of tight stocks.  USDA will shed more light on the situation in the supply-demand report on May 10th.  Because of reduced stocks in South America, traders expect China to beef up purchases of U.S. soybeans.  Inspections last week were 15.4 MB with China taking 6.5 MB or 42 percent of shipments.  Planting is off to a fast start at 12 percent complete compared to 5 percent for the five-year average.  In the meantime, traders are ecstatic regarding the price outlook.  The long position of the trend following funds has risen to 1.065 BB setting a record for three consecutive weeks.  In addition, the sentiment index shows that 93 percent of traders are bullish, the highest in the past few years.  Caution is warranted, however, because when this level has been reached in the past, prices have fallen between $4.12-$3.60.  In the meantime, enthusiasm from the funds seems to be slowing.  From February through March, their longs increased at a rate of 105 MB per week.  However, during the past three weeks, the average increase has only been 11 MB.  We need to monitor this situation closely.    

     July soybeans traded 1512.5 on Wednesday and closed near their low creating a reversal.  This was near a target mentioned in last week’s comments at 1515 and one day prior to a top due on May 3rd.  Follow through weakness occurred on Thursday.  Right now, examination of the market’s structure is warranted.  First, Elliott wave analysis shows that we are in the later stage of the advance from the December low at 1125.25.  Short-term support is expected at 1460 while a close below 1448 diminishes the chance for a new high.  Meanwhile, the second factor to be considered is the long-term continuation chart illustrates that we are in the mature period of the rally beginning in 2008 that may be near an end.  Currently, traders are euphoric regarding additional price gains and this is when caution is advised.  Next week, the odds are 60 percent that July soybeans will be higher.

 Wheat Outlook:

     There is not a lot that can be said about wheat other than it lacks a fundamental bullish story.  Crop conditions improved one point last week to 64 percent in good-to-excellent condition.  Fifty-four percent of the crop is headed compared to 24 percent for the average meaning that harvest will be a couple of weeks early this year.  Seventy-four percent of the spring wheat crop is seeded compared to the average of 32 percent.  Export inspections were 19.8 MB and above the average needed to reach USDA’s projection of 1.0 BB.  In other developments, the trend following funds have lightened their short position by 60 MB reducing it to 425 MB.  Meanwhile, the index funds have reduced their longs to 1.090 BB.      

     July wheat tumbled to 611.75 on Wednesday, its worst one-day sell-off since January.  However, last month’s low at 609.25 held.  Short-term, we are due for a bounce to 628, 633 or 638.  A rally past 680 is needed to turn the longer-term trend higher.  Otherwise, the trend is down with the potential for a sell-off to 555 or lower.   Seasonally, wheat futures tend to peak early to mid May followed by a decline until the first week of July.  Next week, the odds are 70 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.