On The Money Grain Commentary–6-23-11

Corn Outlook:

     Questions abound in the grains.  Will the USDA lower corn acres on June 30th from their current estimate of 90.7 million?  Will more acres be lost because of flooding along the Missouri River?  What does Mother Nature have in store during July and August?  Does this week’s sell-off mean investors are abandoning commodities?  These questions are fixed on the minds of traders.  Meanwhile, the crop is off to a good start with a rating of 70 percent in good-to-excellent condition.  This is a one-point improvement from last week and on par with the five-year average.  Export inspections were the best seen since March at 42.9 MB.  Last week, the trend following funds added 45 MB to their long position increasing it to 1.380 BB.  However, they have sold that amount or more during this week’s collapse. The long position of the index funds stands at 1.835 BB.        

     December corn rebounded to 685 on Wednesday, which was a 50 percent retracement of the sell-off from the contract high at 722.75 to the last week’s low at 647.75.  From here, prices collapsed and fell the 30-cent limit because of fund selling.  This is because sizeable open interest in the July contract must be liquidated ahead of first notice day.  On Thursday, support at 647.75 failed with prices falling to 620.  This may have ended the sell-off.  Previous corrections in the long-term advance have ranged from 10-15 percent and lasted 10-16 days.  Thursday was day 10 of the decline.  Right now, the longer-term wave pattern still shows the potential of trading to a new high, possibly 745 or 775.  The odds of it happening are 62 percent.  They improve with a close a close above 685, but are diminished if 620 fails.  Next week, the odds are even as to whether December futures will be higher or lower.

 Bean Outlook:

            Like corn, there are many unanswered questions surrounding soybeans.  How big are the losses from flooding along the Mississippi and Missouri rivers?  How many acres of corn were switched to soybeans?  Are large investors losing their appetite for commodities?  Hopefully, there will be some answers on June 30th.  Meanwhile, planting is winding down at 94 percent complete.  Sixty-eight percent of the crop is rated in good-to-excellent condition, which is a one-point improvement from last week and compares to 69 percent a year ago.  Exports continue to struggle with inspections at 4.1 MB.  No shipments were reported to China.  In other developments, the trend following funds reduced their long soybean position 110 MB last week to 280 MB.  The longs of the index funds rose 10 MB to 835 MB. 

      November soybeans followed corn lower this week falling to 1292.25.  As mentioned in last week’s comments, a wedge type pattern is developing from the contract high at 1411.25.  This is a bullish pattern as it consists of a series of higher lows from the bottom made in March at 1238.  Historically, the odds of trading to a new high are 76 percent.  In this event, a rally to 1465 or 1505 can be expected with a top developing during the last week of July or the first week of August.  This is contingent upon holding 1287 as failure of this level forewarns that the long-term trend is turning down.  Next week, the odds are 60 percent that November futures will be lower.

 Wheat Outlook:

       Because of poor crop conditions in the southern Plains, harvest is progressing quickly and is 31 percent done compared to the five-year average of 22 percent.  Meanwhile, persistent rain continues to plague the upper Plains with 91 percent of the spring wheat crop planted.  However, the ratings improved four points to 72 percent in good-to-excellent condition.  Because of the decline in prices, interest from foreign buyers in the Middle East has developed with Saudi Arabia purchasing 360,000 metric tons of U.S. wheat.  Inspections last week were 20.9 MB, which is above the average needed to reach USDA’s projection of 1.050 BB.  In other developments, the trend following funds are bearish as they increased their short position 50 MB to 120 MB.  The longs of the index funds rose 20 MB to 1.045 BB.     

     December wheat fell to 690.5, which appears to be a short-term low.  This exceeded the target mentioned in last week’s comments at 710.  Unless there is a rebound past 763, the potential exists for prices working lower to 675.  Seasonally, wheat futures tend to stay on the defensive until the first week of July.  However, once a bottom develops, a sizeable recovery is expected.  Next week, the odds are 80 percent that December futures will be lower.  

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