If you were expecting a thrill from the supply-demand report, keep looking because none was found. The USDA left 2012-13 ending stocks of corn unchanged at 1.881 BB. Traders were expecting a reduction. USDA is waiting until after the grain stocks and acreage report on June 29th before making any changes to the balance sheet. In the meantime, the crop ratings have slipped to 66 percent in good-to-excellent condition, down 6 percent from a week ago and compares to 69 percent last year. In most cases, prices would be going skyward on this development but, instead, failed to respond. The reason is the trend following funds have abandoned their long futures position and are presently sporting a short position of 35 MB. This is the first time they have been short since July 2010.
December corn peaked last week at 544.5 and fell to 509.25 on Wednesday where a short-term low has developed. Provided it holds, a rebound to 526-531 is due. The recovery should end by the middle of next week. Meanwhile, in order to turn the longer-term trend up, a rally past 549.5 is needed. Unless this occurs, the trend is down with the potential for a decline to 465, 445-435, while a more bearish pattern points to a sell-off to 417. From a seasonal perspective, corn futures tend to work lower until mid July or the first week of August if no weather issues are present. Next week, the odds are 60 percent that December corn will be lower.
USDA lowered ending stocks of 2012-13 soybeans to 140 MB putting stocks-to-usage at an extremely tight 4.3 percent. In contrast, global stocks-to-usage are 22.0 percent and in the upper third of their twenty-year range. Looking ahead, weather and the soap opera in Europe will dominate traders’ attention until the stocks and acreage report on June 29th. Currently, sixty percent of the crop is rated in good-to-excellent condition compared to 65 percent a week ago and 67 percent last year. An issue attracting my attention is the funds are reducing their exposure to the grains. Last week, the trend following funds liquidated 85 MB of their long futures position reducing it to 710 MB. Meanwhile, a greater concern is the longs of the index funds have fallen 13.2 percent from the peak set in March. Keep in mind that the funds have been the backbone of the rally in grains since 2008.
November soybeans topped at 1350 on Tuesday followed by a two-day setback to 1302.25 Thursday. From here, prices bounced to 1324.75 with additional resistance expected at 1332. Meanwhile, a break below 1302.25 warrants backing off to 1285 before the pullback is complete. For the intermediate-term, soybean futures tend to work lower until the first week of July. This suggest that a trading range may develop from 1350-1244.75 until that time. For greater confidence of trading to a new high, a rally beyond 1350 is needed. Otherwise, a sell-off below 1244.75 wraps up the chance of it happening as a lower low and a lower high will have occurred. Next week, the odds are 60 percent that November futures will be higher.
USDA offered no surprises in their wheat numbers. Ending stocks for 2012-13 were lowered to 694 MB, which was below estimates but is an ample supply. World stocks fell 1.2 percent with stocks-to-usage at 27.2 percent. This is in the mid third of the twenty-year range. Harvest is progressing quickly and 35 percent done compared to the five-year average of 9 percent. Ratings in spring wheat were down 3 points last week to 75 percent in good-to-excellent condition. The trend following funds are turning more bearish as they increased their short position 95 MB to 260 MB. A concern for the bulls is that the longs of the index funds have fallen 12.3 percent from the peak made in April.
July wheat fell to 613.25 on Tuesday and is subject to working lower to 597 or 585 unless the recent high at 644.75 is exceeded. Seasonally, wheat futures usually trend downward until the first week of July. However, a seasonal bottom may occur early this year. Right now, the cycles point to a low developing on June 21st, June 29th or July 6th. Next week, the odds are 60 percent that July wheat will be higher.
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