On The Money Grain Commentary–6-16-11

Corn Outlook:

      After a bullish crop report last week, corn futures have slid because of long liquidation in the July contract, improving growing conditions, and fear of a default by Greece.  However, a long season is still ahead and there are several unknowns.  One is whether the USDA will lower or raise their acreage estimate in the planting intentions report on June 30th.  The other unknown is whether Mother Nature will cooperate the rest of the season.  Last week, the crop ratings improved two points to 69 percent in good-to-excellent condition.  This is a decent start compared to the five-year average.  Export inspections were mediocre at 32.0 MB and below the average needed to reach USDA’s projection of 1.9 BB.  In other developments, the trend following funds reduced their long corn position 65 MB to 1.335 BB, while the longs of the index funds fell 40 MB to 1.860 BB.  

     Since peaking last week at 722.75, December corn has fallen to 650, a decline of 10 percent.  While this seems extreme, it is in line with previous corrections of 10-15 percent.  Additional support is expected at 636 and 628.  Although there is a chance that a major top has developed, historically, the odds are 62 percent a new high will be seen.  Unless there is a break below 615.25, two bullish patterns are still in force.  The first shows that once the setback is over, prices will be in a position for a move higher to 795 or 810 with a top occurring on July 8th or July 18th.  It could be later depending upon the extent and duration of the current pullback.  Meanwhile, the second and most bullish pattern is for an advance to 935 with a top developing during late summer or early fall.  Next week, the odds are 60 percent that December futures will be lower.        

Bean Outlook:

             Soybeans have slipped this week for the reasons mentioned in corn.  Like corn, there are several unknowns facing the market.  There is much uncertainty regarding acreage in the eastern Corn Belt caused by flooding.  In addition, the potential is present for lost acres in the west because of flooding along the Missouri River.  These unknowns should be cleared up in the planting intentions report at the end of the month.  As of last week, 87 percent of the soybean crop was planted compared to 89 percent for the five-year average.  Sixty-seven percent is rated in good-to-excellent condition, which is below last year’s rating of 73 percent.  Export inspections were 6.7 MB and below the average needed to reach USDA’s projection of 1.540 BB.  China took 2.4 MB.  In other developments, the trend following funds increased their long position 65 MB to 390 MB, while the longs of the index funds fell 15 MB to 825 MB.  

      November soybeans have backed off since peaking last week at 1405.25.  Prices fell to 1345.75 on Thursday with additional support expected at 1332.  If you will notice on the chart, a wedge type pattern is unfolding from the contract high at 1411.25.  This is a bullish pattern unless 1287.25 is broken, and favors an upside breakout as it consists of a series of higher lows.  In addition, the historical odds are 76 percent that 1411.25 will be exceeded.  In this event, look for a rally to 1465 or 1505 with a top occurring on July 22nd or July 26th.  Next week, the odds are 60 percent that July futures will be higher.       

 Wheat Outlook:

     Seasonal factors and harvest pressure are weighing on wheat.  In addition, the supply-demand report showed that global stocks are increasing.  The supportive factor is that livestock producers are looking at wheat as an alternative to feeding corn.  As of last week, 22 percent of the crop was harvested, which is ahead of the five-year average at 13 percent.  Spring wheat planting is almost complete at 88 percent.  Export inspections were 23.9 MB.  In other developments, the trend following funds increased their short position 55 MB to 70 MB.  Meanwhile, the longs of the index funds rose 10 MB to 1.025 BB.

December wheat has been sliding since peaking last month at 923.25.  Prices fell sharply on Thursday breaking the low made in March at 756.75.  There may be additional weakness to 710.  From a seasonal perspective, wheat tends to work lower until the first week of July or the first week of August.  Cycle analysis shows that a bottom could occur on June 21st or July 1st.  For now, a close past 815 is needed to verify that the sell-off is over.  Next week, the odds are 60 percent that December wheat will be higher.

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