On The Money Grain Commentary 5-31-12

Corn Outlook:

      Macroeconomic issues are weighing on corn values even though recent dry conditions have caused the ratings to slip.  Currently, 72 percent of the crop is in good-to-excellent condition, down 5 points from the previous week.  Illinois and Indiana were down 13 percent and 14 percent respectively.  Normally, the market would bounce from this, but the worsening financial crisis in Greece and lowering of the debt rating in Spain is causing large traders to take a cautious approach to commodities.  It is only a matter of time before the wheels fall off in Europe!  Last week, the trend following funds increased their long futures position 140 MB to 285 MB.  However, prices have since declined and these positions are now underwater.  In other developments, export inspections were 29.5 MB and below the average needed to reach USDA’s projection of 1.7 BB.  

     July corn fell to 553.5 on Wednesday where a short-term low occurred.  Resistance is expected on a bounce to 570-575.  Short-term, the market may work lower to 545 before the sell-off from the high made earlier this month at 644.5 ends.  In the meantime, be aware that we are entering a period where corn futures tend to recover until mid June.  If that occurs this season, the July contract could muster a rebound to 590 once the decline from 644.5 is over.  Longer-term, however, a sell-off to 525 cannot be ruled out before July futures expire.  Keep in mind that corn prices trend downward 68 percent of the time during June unless a production problem arises.  Next week, the odds are 60 percent that July corn will be lower.

Bean Outlook:

      Soybean stocks are tight because of the reduced crop in South America, but fund liquidation has driven prices lower.  Since setting a record long futures position of 1.125 BB in early May, the trend following funds have liquidated 260 MB reducing their longs to 865 MB.  Just think of where prices will be if they go short!  Since 2006, speculative influence has overwhelmed the ag markets causing the fundamentals to take a backseat which has created price distortions between cash and futures on many occasions.  In other developments, planting is progressing at a fast pace and 89 percent complete compared to the average of 61 percent.  Export inspections were 12.4 MB with China taking 7.0 MB or 56 percent of shipments.      

     July soybeans traded to 1402 on Tuesday and have since fallen below support at 1351.  Look for the market to continue lower to 1320 before the sell-off from 1512.5 ends.  Cycle analysis points to a low occurring on June 5th.  Seasonally, soybean futures tend to bottom late May-early June followed by a rebound until the middle of the month.  Resistance will be at 1402.  Meanwhile, keep in mind that soybean futures are down during June 63 percent of the time.  Next week, the odds are 60 percent that the July contract will be lower.

 Wheat Outlook:

      Wheat futures have tumbled from a couple of weeks ago because of harvest pressure.  Nine percent of the crop has been cut, which is ahead of the average of one percent.  Although hot, dry conditions have reduced the potential for production in Kansas, initial yield reports are not as bad as expected.  Prospects for spring wheat look good with 79 percent of the crop reported in good-to-excellent condition, up 5 percent from a week ago.  In April, the trend following funds sported a record short position of 485 MB.  Since then, their position has fallen to 190 MB.  Export inspections were 20.4 MB with shipments on track to reach USDA’s projection of 1.025 BB.  

     July wheat fell to 642.5 on Thursday, which is near a target mentioned in last week’s comments at 642.  Resistance is expected on a bounce to 660-665. Meanwhile, the trend is down with the potential for a sell-off to 635, 620 or the low made earlier this month at 592.25.  In the event that it fails, a decline to 555 is expected.  Seasonally, wheat futures generally trend lower until the first week of July.  Cycle analysis points to a bottom developing on June 29th or July 6th.  Keep in mind that 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.