On The Money Grain Commentary–5-5-11

Corn Outlook:

      News this week centered upon the death of Osama Bin Laden, the economy and weather.  The economy shows signs of slipping which caused broad based selling in commodities by the funds.  This was especially the case in the energies and metals, which lent pressure to the grains.  Meanwhile, the eastern Corn Belt is a soaked sponge, but the west has a window to plant corn.  Planting is behind schedule at 13 percent complete compared to 66 percent a year ago and 40 percent for the five-year average.  Iowa and Minnesota are both over 40 percent behind their average.  While weather has improved in the west, flooding is a problem in the east.  Export inspections were 34.6 MB and below the average needed to reach USDA’s projection of 1.950 BB.  Last week, the long position of the trend following funds fell 20 MB to 1.550 BB, while the longs of the index funds rose 60 MB to 2.020 BB.   

     The sell-off from the contract high at 788.75 in July corn has run deeper and taken longer to complete than originally expected.  However, it has the characteristics of a correction because of the overlapping nature of the decline, which suggests higher prices are still possible.  We fell to 701 on Thursday filling the gap left in March.  This is the line in the sand that must hold or irreparable technical damage will develop that diminishes the chance for a new high.  Although the odds are 62 percent that one will occur, we are stretching the envelope, as time is becoming a factor.  As mentioned in previous comments, a major top in corn has been expected.  Resistance is at 738.  We need a close above this level to upright the ship.  Next week, the odds are even as to whether July futures will be higher or lower. 

Bean Outlook:

             Record harvest in South America and cooling demand from China has damped the bulls’ enthusiasm for soybeans.  Prices fell this week because of broad based commodity selling by the funds.  In addition, delayed corn planting in the Midwest will mean an increase in acres.  Export inspections last week were a marketing year low at 5.5 MB with China nowhere to be found.  Meanwhile, the trend following funds boosted their long position 85 MB to 405 MB, while the longs of the index funds rose 35 MB to 820 MB.  Right now, soybeans are the victim of macroeconomic factors.         

     July soybeans have been trading in a sideward pattern since peaking in February at 1474.5.  Prices rebounded to 1402.5 on Monday and turned down falling to 1310 during Thursday’s session.  This penetrated last month’s low at 1328.5.  In addition, you can see on the chart that the up trend line has been broken, which means that the next area of support is the March low at 1278.  Be advised that a sell-off below this level turns the long-term trend down, as it constitutes a lower low and a lower high from 1442.25.  Although the odds are 71 percent of rising beyond this level, the market must upright itself soon or time will run out for it to happen.  Look for short-term resistance to develop at 1350.  Next week, the odds are 60 percent that July futures will be higher. 

  Wheat Outlook:

     Growing conditions are poor in the upper and southern Plains, and there are concerns regarding crop losses in Canada and Europe.  However, in light of this the market lacks bullish conviction as it refuses to move higher.  Last week, the crop ratings fell one point to 34 percent in good-to-excellent condition compared to 68 percent a year ago.  In the meantime, spring wheat planting is far behind at 10 percent complete versus the five-year average of 43 percent.  The bright spot for the market is that export inspections are holding up at 36.3 MB and on track to reach USDA’s projection of 1.275 BB.  Last week, the trend following funds trimmed their short position to 15 MB, while the index funds increased their longs to 1.085 BB.       

     July wheat rebounded to 824.5 on Monday and turned down.  Although the fundamentals are positive, technically the market is acting poorly.  While there is a 52 percent chance of climbing past last month’s high at 865, it is a long shot as there is a strong seasonal tendency for moving lower until the first week of July.  Prices fell to 748.5 this week, which points to a decline to 725 and possibly a test of the March low at 691.  Cycle analysis shows prices being on the defensive until May 24th or May 31st.  Next week, the odds are even as to whether July futures will be higher or lower.    

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