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For over a month, the corn market has been battered because of fund liquidation and near ideal growing conditions. In early May, the trend following funds were long 1.035 BB of corn. Since then, they have been on a liquidation binge reducing their position to 430 MB. Last week alone, they sold 150 MB. Also weighing on the market is a crop rating of 76 percent in good-to-excellent condition. I can tell you that it does not get much better. In three similar years, 2012, 2010 and 2006, the ratings fell sharply within 30 days on two occasions. According to Ag Watch’s yield model, we are looking at a yield of 166.7 bpa compared to USDA’s estimate in May of 165.3 bpa. If realized, production this fall could exceed 14.0 BB with ending stocks of 1.8 BB. While the Corn Belt is seen as a garden spot now, the northern Midwest has had too much rain and it is a long time before harvest. In other developments, export inspections were 43.4 MB and are on track to reach USDA’s projection of 1.9 BB.
December corn has shown only a few moments of bottoming in the slide from last month’s high at 514.75. Last week, the sell-off stalled briefly at 438.75 followed by a bounce to 449.75. From here, there was a decline to 436.25 on Tuesday followed by a rebound to 448 Thursday. It seems that when a bottom develops, a new low is made within 2-3 days. Meanwhile, the bears should take heed, as price divergence is showing in the momentum indicators while the trend indicators are attempting to turn up. This suggests that we may be in the process of bottoming. However, for one to be confirmed, a rally beyond 450 is needed which would establish a higher high and break the downtrend. In that event, it could cause the bears to scramble resulting in a recovery to 466. Next week, the odds are 60 percent that December futures will be lower.
While growing conditions are near ideal for soybeans, the market has held together better than corn because of tight old crop stocks. Last week, 73 percent of the crop was rated in good-to-excellent condition, down one point from the previous week. However, this is the strongest rating seen since 2010. Meanwhile, the trend following funds have been in a liquidation mode since early April. At that time, they were long 765 MB and have since reduced their position to 200 MB. Last week, they trimmed 205 MB from their longs. Looking ahead, if there is an increase in planted acres of one million or more from USDA’s March estimate of 81.5 million acres , we are staring at ending stocks of 350 MB. This could come on top of a record supplies in South America. On June 30th, the USDA will update its acreage projection. In other developments, export inspections were 7.9 MB with China being a no show. They have received only one shipment in the past six weeks. In the meantime, we are still on track to meet USDA’s export projection of 1.6 BB.
November soybeans bottomed earlier this month at 1201.25 and have since traded in a range bound by the high at 1232.5. The market fell to 1202.5 on Tuesday and rebounded to 1228.25 Thursday. A rally beyond 1232.5 projects rising to 1245. Meanwhile, the seasonal tendency is for a move downward until the end of the month. A decline below 1201.25 confirms that a downside breakout of the range is getting underway and projects a sell-off to 1155 or 1100 as the next low. Cycle analysis points to a bottom unfolding around July 3rd or July 16th which stands the chance of being an intermediate-term low. Longer-term, the potential exists for a decline to 1035 or 985 if a weather concern does not arise. In this event, an important bottom will not likely occur before August 26th, September 10th, or September 26th. Next week, the odds are 60 percent that November futures will be higher.
The trend following funds have been a bearish force in wheat as they continue to tack on to their short position. Last week, they increased their shorts 80 MB to 255 MB. Harvest is getting into full swing and is 16 percent complete compared to the average of 20 percent. Even though the southern Plains saw an increase in rainfall a couple of weeks ago, I am hearing reports of poor quality and disappointing yields. Meanwhile, the spring wheat crop is off to a good start with a rating of 72 percent in good-to-excellent condition, up one point from a week ago and 4 points higher than a year ago. Export inspections last week were 14.5 MB and are off to a slow start for the marketing year.
December wheat fell to 608 on Tuesday and may be ending a five wave pattern in the decline from the high made last month at 765. However, for greater confidence of a bottom, a close beyond Wednesday’s high at 628.5 is needed which would constitute a higher high. In addition, a close beyond 617 at the end of the week, creating the first higher weekly close since the sell-off from 765 began, is needed. In that event, a recovery to 648 or 668 could unfold Otherwise, if 608 cannot hold, the door is open for another leg down to 595 or 575. Next week, the odds are 60 percent that December wheat will be higher.
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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.