On The Money Grain Commentary–7-14-11

Corn Outlook:

      Uncertainty prevails in the grains leaving the nerves of traders and producers frayed.  The debt ceiling negotiations in Washington are in stalemate.  Italy is the latest domino behind Greece and Portugal in the European debt crisis.  There is speculation of a QE3.  Lastly, the crops are behind in development, and the Corn Belt is heating up.  One wonders if rationality will return.  Meanwhile, the USDA projects 2011-12 ending stocks of corn at 870 MB compared to 695 MB in June.  Traders breathed a sigh of relief that there were no surprises, and they are looking ahead to the acreage re-survey in August.  Currently, 69 percent of the corn crop is rated in good-to-excellent condition, unchanged from a week ago.  In other developments, the trend following funds continue to liquidate and have reduced their long position to 710 MB.    

     December corn bottomed on July 1st at 575.5 and traded to 688 on Wednesday.  This is a gain of 76 percent of the losses from the sell-off of the contract high at 722.75.  Additional resistance is expected at 696.  What are the chances of trading to a new high?  Right now, they are 43 percent.  Meanwhile, there is a bullish pattern in the early stages of development that raises the potential for advancing to 755.  However, a close beyond 700 is needed to put greater stock in it happening.  If it occurs, we could work upward until August 5th or August 18th, which is in line with the seasonal pattern.  Otherwise, failure of 640 implies that the rally from 575.5 is an overextended correction and points to weakness until the first week of August.  Next week, the odds are 60 percent that December futures will be lower. 

Bean Outlook:

            Soybean stocks are expected to be tight for 2011-12 as the USDA lowered inventory to 175 MB from 190 MB in June.  However, traders have the jitters because of declining import interest from China, the standoff of the debt ceiling negotiation in Washington, and the worsening debt crisis in Europe.  The problem has engulfed Greece and Portugal, and is about to spread to Italy and Spain.  Eventually, it will reach the shores of the U.S. and impact the global banking system.  In other developments, the crop rating is unchanged at 66 percent in good-to-excellent condition.  Heat is ramping up in the Midwest, an issue for soybeans that are blooming.  Meanwhile, the trend following funds have reduced their long position that has fallen to 105 MB.  This could be explosive if weather becomes a factor in August.   

      November soybeans have risen from the low made late last month at 1286 and are not far from resistance at 1405.25 and the contract high at 1411.25.  Prices traded beyond 1375, which increases the odds there will be an upside breakout of the rising wedge pattern from the March low at 1238.  Previous comments have mentioned the chances are 76 percent of trading to a new high.  Short-term, the market is overextended and subject to a pullback to 1360.  Unless there is a sell-off below 1335, the potential exists for a rally to 1465 or possibly 1505.  In this event, a top could occur on August 5th, August 17th or August 29th.  Be advised the long-term pattern shows that this possibly being a multi-year high.  Next week, the odds are 60 percent that November futures will be higher.

  Wheat Outlook:

     Wheat has turned up after a horrendous June.  Prices were pressured on expectations that U.S exports will suffer from increased competition with Russia and the Ukraine.  Russia’s grain harvest is expected to improve 5-6 million tons from the drought of a year ago.  Meanwhile, harvest in the U.S. is progressing and is 63 percent done.  Currently, the USDA projects 2011-12 ending stocks of wheat at 670 MB, which is up from 687 MB in June.  In other developments, the trend following funds are becoming more bearish and have increased their short position to 255 MB, the largest since July 2010.  However, this could be a silver lining if bullish news develops.        

     Last week’s comments mentioned that December wheat was due for a recovery to 740-750 with a top on July 13th.  As it turned out, prices peaked at 750 during the time mentioned.  However, this may only be a temporary high.  Seasonally, the market does not generally turn up until the first week of August.  For greater evidence that the seasonal low occurred early at 639 on July 1st, a rally beyond 780 is needed.  In this event, prices could trade higher until mid October.  Otherwise, the market is still at risk for a decline below 639.  Next week, the odds are 60 percent that December futures will be lower.   

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