On The Money Grain Commentary–6-2-11

Corn Outlook:

     Corn planting is winding down, but the growing season will prove to be an adventure for traders.  As of last week, 86 percent of the corn crop was planted, which is below the five-year average of 95 percent.  Ohio is behind the eight-ball with only 19 percent of their crop in the ground.  Meanwhile, 63 percent of the crop is rated in good-to-excellent condition compared to 76 percent a year ago.  These issues suggest that with stocks at a 15-year low, the growing season could be loaded with fireworks.  In other developments, export inspections were 35.6 MB and below the average needed to reach USDA’s projection of 1.9 BB.  The trend following funds are becoming more bullish as they added 165 MB to their long position last week increasing it to 1.295 BB.  The longs of the index funds fell 10 MB to 1.890 BB.

     July corn fell to 726.75 last week and recovered to 770 on Thursday.  The correction from 775 may be over and, if so, the market should resume its advance from last month’s low at 659.  Meanwhile, if 740 cannot hold, there could be a pullback to 726.75 again.  Unless there is a decline below 659, the trend is higher with the potential for an advance to 840, while a more aggressive wave pattern points to a rally to 915.  Cycle analysis shows the next important top developing during the last week of June.  This coincides with the planted acreage report due on June 30th.  Next week, the odds are 60 percent that July futures will be lower. 

 Bean Outlook:

          Uncertainty surrounds estimated soybean acres because of late corn planting, excessive wet conditions, and flooding along the Mississippi River.  These issues have complicated getting a handle on intended acres.  As of last week, 51 percent of the crop was planted compared to the five-year average of 71 percent.  Ohio is struggling with only 7 percent of the crop in the ground.  Export inspections last week were 10.3 MB. with China taking 4.5 MB.  In other developments, the trend following funds added 50 MB to their long position increasing it to 300 MB.  The longs of the index funds grew 30 MB to 830 MB.    

      If you notice on the July soybean chart, a wedge type pattern has been in progress from 1278-1442.25 since March.  Prices rose to 1411.5 on Thursday breaking the downward sloping trend line.  This suggests that an upside breakout could be getting underway.  If so, additional follow through is needed.  Last week’s comments mentioned that a breakout was due by June 2nd.  Unless there is a decline below 1366, look for a rally to the contract high at 1474.5, while a more bullish pattern points to an advance to 1550.  Be alert for a top that could occur at the end of this month or the first week of July.  Meanwhile, if there is a decline below 1366, the wedge pattern is still in progress and prices could back off to 1340.  Next week, the odds are 60 percent that July futures will be lower.

 Wheat Outlook:

     Wheat was broadsided this week when Russia announced it would lift a ban on grain exports in July.  This pressured the market on Tuesday and Wednesday.  However, the downside should be limited because of reduced output in the southern Plains and Europe.  Last week, the crop rating improved one point to 33 percent in good to excellent condition and compares to 65 percent a year ago.  Meanwhile, spring wheat planting woes continue as only 68 percent of the crop is in the ground compared to 95 percent for the five-year average.  Rain has developed in the northern Plains, which means that time is running out.  Export inspections were less than expected at 26.2 MB with cumulative shipments standing at 1.253 BB.  In other developments, the trend following funds have reduced their short position 85 MB to 35 MB.  The longs of the index funds fell 20 MB to 1.020 BB.      

     July wheat fell to 754.25 on Wednesday where a bottom has occurred.  Currently, there are two patterns unfolding.  One shows the market stalling at 795-805, while the other is more aggressive and points to a rally back to the April high at 865.  Right now, it is too soon to determine which pattern is unfolding.  From a seasonal perspective, wheat futures frequently recover until mid June followed by a decline until the first week of July or the first week of August.  Next week, the odds are 80 percent that July futures will be lower.  

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