On The Money Grain Commentary 6-26-14

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Corn Outlook:

Corn futures are being plagued by the outlook for a record crop.  Whether this occurs will partially be answered in the acreage report on June 30th.  In March, USDA estimated planted acres at 91.7 million.  So far, the Corn Belt has been blessed with near ideal conditions with the exception of the upper Midwest which has seen excessive rain.  In the meantime, 74 percent of the crop is rated in good-to-excellent condition, down 2 points from a week ago.  However, this is well above the rating of 65 percent a year ago.  According to Ag Watch’s yield model, we are looking at a yield of 166.7 bpa versus USDA’s current projection of 165.3 bpa.  In other developments, export inspections were down last week at 38.9 MB running slightly below the pace needed to reach USDA’s target of 1.9 BB.  Meanwhile, the trend following funds have trimmed their long position to 355 MB reducing it 75 MB last week.

December corn is marking time until after next week’s report, although the bears are willing to pounce on each rebound.  Last week, the market rose past a point of resistance at 450 and topped on Monday at 457.25.  This was followed by a swift break to 436.75 Tuesday.  Prices have recovered and will likely meet resistance at 448-450.  A rally beyond 457.25 is needed to turn the trend up suggesting the decline from last month’s high at 514.75 is done.  Otherwise, a break below support at 436.25 projects falling to 423.  Currently, the momentum and trend indicators are neutral, which does not give much guidance as to the direction the market is headed.  However, historically, corn futures trend lower during July 63 percent of the time.  Next week, the odds are even as to whether December corn will be higher or lower.

Bean Outlook:

      New crop soybeans have been resilient the past couple of weeks considering the decline in corn and wheat.  This stems from the fact that old crop stocks remain tight.  In the meantime, the crop is off to a good start, rated 72 percent in good to excellent condition, down one from a week ago.  This is a strong rating compared to previous years.  Keep in mind that the market’s resilience may change after the acreage report on June 30th.  In March, USDA projected planted acres at 81.5 million.  However, because of the late start in corn planting and the price relationship favoring soybeans early in the season, traders anticipate that planted acreage could be an additional 1-3 million.  If it materializes and Mother Nature continues to cooperate, prices will not stay at these levels.  In other developments, export inspections were meager at 2.2 MB with China a no show again.  However, shipments are on track for USDA’s target of 1.6 BB.  Meanwhile, the trend following funds are less friendly as they whacked 195 MB from their long position reducing it to a token 5 MB.

      Last week, November soybeans bottomed at 1202.5 and rose to 1243.5 on Monday.  This was followed by a break to 1218.25 Tuesday.  Prices recovered and traded to 1246.25 on Thursday.  The next area of resistance is 1252-1260.  However, the chances of rising past last month’s high at 1279 are limited unless the report on Monday offers a bullish surprise.  If you will notice on the chart, a head and shoulders topping pattern seems to be unfolding.  A decline below 1201.25 will constitute a downside breakout and project a sell-off to 1165 or 1133.  Longer-term, the potential exists for a decline to 1035 or 985.  In this event, a bottom could occur around August 26th, September 10th or September 26th.  During July, soybean futures are down 63 percent of the time.  Next week, the odds are 60 percent that the market will be lower.

 Wheat Outlook:

Have you ever been in a crowed room and noticed a funny smell?  It is probably wheat.  Since May, the market has been under relentless selling pressure, and it looks like the trend will continue.  Prices are being pressured from harvest, which is 33 percent done, and improving conditions in the Black Sea region.  In addition, U.S. wheat is more expensive than the competition on the world market.  Last week, the trend following funds increased their short position 10 MB to 265 MB, the largest since February.  Meanwhile, export inspections were better than the previous week at 21.3 MB and are on track for reaching USDA’s target of 925 MB.  Wheat is the weakest link in the grains and is adding to the woes in corn.

December wheat continues to stair step its way down.  After rebounding to 628.5 last week, the market fell below support at 608 to 598.25 on Tuesday.  Prices recovered and are expected to meet resistance on a bounce to 613-616.  Unless there is a rally past 628.5 setting a higher high, we could work lower to 575.  Meanwhile, watch for a bottom around July 7th or July 17th if we are near the target mentioned.  During July, wheat futures are down 61 percent of the time.  Next week, the odds are 80 percent that prices will be lower.

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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.