On The Money Grain Commentary 6-21-12

Corn Outlook:

     Weather took center stage in the grains this week as temperatures are above normal with limited rainfall forecast in the southern Corn Belt.  Weather has been the focal point since early spring and it is rare when you fail to see a crop scare in June.  After all, this is the time of the year when the basal ganglia section of the brain kicks into overdrive!  Presently, sixty-three percent of the corn crop is rated in good-to-excellent condition which is down 3 points from last week and compares to 70 percent a year ago.  The biggest decline was noted in Indiana, which fell 12 percent.  Export inspections were better than expected at 24.7 MB but less than the average needed to reach USDA’s projection of 1.650 BB.  Last week, the trend following funds reduced their short futures position 20 MB to 15 MB, while the longs of the index funds fell slightly to 1.9850 BB.  Their position has been declining since April.          

     December corn exceeded resistance at 549.5 this week breaking the series of lower highs and lower lows from the contract high 673.5.  In addition, we closed above the downtrend line extending from the peak at 618.25 turning the intermediate-term trend up.  Short-term, the market is overbought with a reversal occurring at Thursday’s high of 568.  Failure of 548 means that a setback to 536-530 can be expected.  Otherwise, a move past 568 warrants trading to 575 with a shot at 585.  Look for a top on June 27th if we are higher.  Longer-term, the trend is still down.  Next week, the odds are even as to whether December corn will be higher or lower.

Bean Outlook:

      Soybean futures rallied sharply this week and are very sensitive to the weather forecasts because of tightness in domestic stocks.  Stocks-to-usage are very snug at 4.3 percent.  For this reason, soybeans have been the supporting influence in the grains.  Last week, the crop ratings fell 4 points to 56 percent in good-to-excellent condition and compares to 68 percent a year ago.  Ohio fell the most with a 14 percent decline.  Although the ratings are below the five-year average, it is not time to pull the plug on the crop, just yet.  Export inspections lower than expected at 7.8 MB with China taking 2.4 MB or 30 percent of shipments.  Meanwhile, the trend following funds turned more bullish as they added 180 MB to their long futures position increasing it to 890 MB.  The longs of the index funds are unchanged at 755 MB.  However, their position has been declining since late March.    

     November soybeans surged to 1395.75 this week and knocked on the door of the contract high at 1400.  Last week’s comments mentioned that a rally beyond 1350 was needed for greater confidence of trading to a new high.  Short-term, the market is overbought but should find support on a pullback to 1360.  Unless there is a close below 1350, look for a continued move upward to 1420-1430 and possibly 1470.  Cycle analysis points to a top occurring on June 29th although it will probably be closer to July 5th.  Meanwhile, a close below 1350 spells trouble for the bulls.  As I mentioned in a previous comment, the longer-term pattern shows that soybeans are in the mature stage of their advance from the 2008 low suggesting that a multi-year top may not be far off.  Next week, the odds are 80 percent that November futures will be lower.

 Wheat Outlook:

     Wheat futures are mostly underpinned from the upward move in soybeans, while additional support stems from concerns of dryness in portions of Russia and northern China.  Meanwhile, harvest is progressing quickly at 48 percent complete compared to the average of 16 percent and raising ideas that an early seasonal low has occurred.  The rating for spring wheat improved one point to 76 percent in good-to-excellent condition and compares to 72 percent a year ago.  Export inspections were 20.6 MB and below the average needed to reach USDA’s projection of 1.150 BB.  Last week, the trend following funds increased their short futures position 25 MB to 285 MB while the longs of the index funds rose 15 MB to 1.005 MB.  However, their position has been declining since April. 

     December wheat has risen past resistance at 683.25 suggesting that a seasonal low has developed at 649.25.  Prices traded to 721 on Thursday from where a reversal occurred.  Support is expected on a setback to 685-675.  Seasonally, wheat futures tend to trade higher until mid July followed by a break into the first week of August.  As it stands now, a trading range from 745.5-649.25 will likely be the path the market follows for the next several weeks.  Right now, a rally beyond 745.5 is needed to turn the pattern bullish.  Next week, the odds are 80 percent that December wheat will be lower.

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