We have been in a full-blown weather market since mid June with the crop ratings falling to their lowest point since the drought of 1988. Last week, the corn crop deteriorated 8 points to 40 percent in good-to-excellent condition. USDA reduced their yield estimate in the July Supply-Demand to 146 bpa from 166 bpa last month. As a result, ending stocks for 2012-13 fell to 1.183 BB from 1.881 BB in June. World ending stocks are down 13.9 percent to 134 million tons. The drought in the Midwest added fire to the belly of the trend following funds as they increased their long position 270 MB to 525 MB. Meanwhile, the index funds are reducing their exposure to commodities with their longs falling slightly to 1.915 BB. Be advised that the grain rally in 2008 was supported by both the trend following and index funds. That is not the case this year.
December corn traded to 748 on Wednesday, July 11th followed by a sharp sell-off to 685.25 creating an outside day reversal. Last week’s comments mentioned that a rally to 732 or 755 was expected with a top likely on the 11th. As it stands now, we have completed the move higher from 546.25. Support is expected at 685 and then 670. The pullback is probably complete but, if not, it should be over by the end of the week followed by a rally to 785 and maybe 810 with a peak occurring around July 18th and no later than July 24th. The next high has the potential of being a major top wrapping up the advance from 506 and possibly 499. Be advised that the sentiment index shows that 94 percent of traders are bullish corn. This is a dangerous level because when it has been reached in the past; prices have fallen from $1.50-$2.48. Next week, the odds are 60 percent that December corn will be lower.
Soybean traders are focused on the drought, although the situation is not as critical as for corn because it is not too late for rain to give the crop a boost.. Meanwhile the crop is deteriorating with the ratings falling 5 points to 40 percent in good-to-excellent condition. Iowa’s crop fell 11 percent. USDA lowered their ending stocks estimate for 2012-13 to 130 MB, down 10 MB from June. World ending stocks fell 4.9 percent to 55.6 million tons. The trend following funds are bullish as their long futures position has risen to 1.1 BB, which is 25 MB short of the record set in May. The longs of the index funds grew 25 MB to 775 MB. While China’s economy is slowing and the financial crisis in Europe is still present, these issues are taking a backseat to weather.
November soybeans traded to 1575 on Wednesday, July 11th ending the rally from 1392.75 and possibly 1244.75. Last week’s comments mentioned that prices were expected to rise to 1578 and top during the period of July 9th-11th. Right now, the wave pattern leans to a short-term top completed at 1575. If this the case, the gap beginning at 1493 should hold with prices rising to 1618, 1635 or maybe 1700. Be alert for a top on July 18th or July 24th if the market is higher. Meanwhile, a close into the gap voids this outlook and suggests that the advance from 1244.75 is over. Be aware that the sentiment index shows that 93 percent of traders are bullish soybeans. When this has developed in the past, prices have fallen from $1.78-$4.12. Next week, the odds are 60 percent that November futures will be higher.
While flash flooding in southern Russia and dryness in Australia is supporting wheat, the market is mostly tagging along with the rally in corn and soybeans. Harvest is progressing quickly and 75 percent complete compared to the average of 56 percent. USDA lowered their 2012-13 ending stocks estimate for wheat 30 MB to 664 MB. World ending stocks fell 1.6 percent to 182.4 million tons. Much of the support in wheat is from the trend following funds liquidating their short futures position. Last week, it fell 35 MB to 55 MB. Meanwhile, the index funds are long 985 MB.
December wheat had a wild day on Wednesday, like corn and soybeans, trading in a range from 860.5-816.25. As it stands now, the rally from 649.25 appears to have more potential and unless there is a decline below 816.25, prices are in a position to work upward to 887 or 905. Currently, the sentiment index shows that 85 percent of traders are bullish wheat, which is an extreme level suggesting that caution is warranted. Next week, the odds are 60 percent that the December contract 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.