On The Money Grain Commentary 6-7-12

Corn Outlook:

     The corn crop is off to a good start with a rating of 72 percent in good-to-excellent condition, unchanged from last week.  Weather is expected to be dry heading into the weekend but, unless Mother Nature changes her mind, a record yield may be in the making.  Last week, traders feared that the wheels were coming off in Europe because of the crisis in Spain.  Currently, conditions seem stabile, but for how long?  It is only a matter of time before the Euro zone unravels.  The trend following funds are backing away from commodities as they shed 205 MB of corn last week reducing their long position to 80 MB.  Export inspections were 27.1 MB and below the average needed to reach USDA’s projection of 1.7 BB.  The next mover and shaker for the corn market is the supply-demand report on June 12th while grain stocks and planted acreage are on June 29th.        

     December corn bottomed on Tuesday at 507.5 and has since risen to a downtrend line shown on the chart.  Seasonally, prices tend to move upward from late May into early-mid June.  In order to break the series of lower highs and lower lows that have been unfolding from the contract high at 673.5, a rally and preferably a close beyond 549.5 is needed.  Unless it happens, the trend is down with the potential for a sell-off below last month’s low at 499 to 475 or 435, while a more bearish pattern points to a decline to 417.  Current cycle analysis shows the market trending lower until July 23rd, August 15th or August 22nd.  In the meantime, prudence dictates waiting to see if 549.5 is exceeded before turning bullish.  Next week, the odds are 60 percent that December corn will be lower. 

Bean Outlook:

      The month long sell-off in soybeans has ended, as they have turned higher.  A calming of the macroeconomic markets, a dry pattern going into the weekend, and a surprise one-half point interest rate cut by China are underpinning prices.  With the exception of double crop soybeans, planting is essentially done at 94 percent.  The first crop rating of the season shows that 65 percent of the crop is in the good-to-excellent category, which is below the five-year average of 67 percent.  This was less than traders’ expected and is providing support.  Meanwhile, the trend following funds have backed away from soybeans as they reduced their long position 20 MB last week to 845 MB.  This is down from the record set in early May of 1.125 BB.  The question is whether they will reduce their position further.  Export inspections were better than expected at 16.9 MB with China taking 2.4 MB or 14 percent of shipments.    

     November soybeans bottomed on Monday at 1244.75, which has ended the sell-off from 1394.5.  Prices have since risen nearly eight percent.  Short-term support is at 1325 followed by 1310.  The chance of rising past the contract high at 1397 is 82 percent.  However, it may be difficult to achieve this season because of the steepness of the decline from 1397.  For greater confidence of trading to a new high, a close beyond 1357 is needed.  Seasonally, soybean futures tend to work higher until mid June.  Currently, the cycles point to the recovery from 1244.75 ending on June 14th, although it may be closer to June 19th.  Next week, the odds are 60 percent that November futures will be lower.

 Wheat Outlook:

     Wheat futures have stabilized and are following corn and soybeans.  Underlying support is from expectations that world stocks will be lower because of dry conditions in the EU.  Meanwhile, harvest in the U.S. is getting into full swing and 20 percent complete compared to the average of 3 percent.  Dryness has plagued the Kansas crop, but yield reports reflect less damage than expected a couple of weeks ago.  Seventy-eight percent of the spring wheat crop is rated in good-to-excellent condition, down one point from a week ago.  The trend following funds continue to abandon their short position reducing it 25 MB last week to 165 MB.  Export inspections were 21.5 MB with shipments for the season reaching 1.035 BB. 

     July wheat bottomed last week at 611 and has since recovered.  Prices traded to 644.75 on Thursday and should meet additional resistance at 650.  From a seasonal perspective, wheat futures tend to work lower until the first week of July.  The current wave pattern points to a decline to 592 or possibly 580.  Cycle analysis indicates a bottom occurring on June 21st, June 29th or July 6th.  Next week is generally not a good week for wheat futures as the odds are nearly 100 percent that they 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.