On The Money Grain Commentary–7-28-11

Corn Outlook:

     Two issues are captivating the attention of producers and traders—weather and the debt-ceiling dilemma.  Oppressive heat has taken a toll on the corn crop during the past couple of weeks, as the ratings are ten percent below a year ago at 62 percent in good-to-excellent condition. However, conditions are expected to improve.  Meanwhile, where are the adults in Washington to resolve the debt-ceiling dilemma?  Legislators and the Administration are playing political football to enhance their own interests.  While default on the debt is unlikely, downgrading our debt this fall or next year is almost a certainty because of the lack of fiscal responsibility.  This will cause serious implications.  In other developments, export inspections were better than expected at 35.3 MB.  The trend following funds added 85 MB to their long position increasing it to 940 MB.  The longs of the index funds fell 20 MB to 1845 BB.

     December corn fell to 663.25 last week, which was short of a target mentioned in previous comments at 640.  Since then, we rebounded to 693 on Wednesday.  There is still time for a decline to 640, but it may be running out, as the market is entering a period where there is a 71 percent probability of rising until mid August or the first week of September.  The next couple of sessions should clear up the discrepancy.  Be advised that a rally beyond last week’s high at 703.75 turns the outlook bullish and projects an advance past the contract high at 722.75 to 760, 770 or 785.  In this event, look for a major top, possibly a multi-year high occurring on August 29th, September 6th or September 20th.  From a historical perspective, corn futures are higher 68 percent of the time during August.  Next week, the odds are 70 percent that December corn will be lower.    

 Bean Outlook:

            While an unexpected negative development from the economy could pressure soybeans, producers and traders are more concerned about weather next month.  Because of intense heat and dryness, the crop ratings fell two points last week to 62 percent in good-to-excellent condition.  Sixteen percent of the crop is setting pods, which means that weather in August is crucial.  In other developments, export inspections were 5.1 MB with China being a “no show” for the fourth consecutive week.  The trend following funds turned more bullish as they increased their long position 185 MB to 390 MB.  The longs of the index funds stand at 835 MB.        

       November soybeans traded to 1394.5 on Tuesday and stalled.  Like corn, soybeans are approaching a period in which there is an 86 percent probability of turning up until the middle of August or the first week of September.  A rally beyond Tuesday’s high is needed for this to be confirmed.  Meanwhile, if 1358 cannot hold, there could be a quick break to 1335.  If you will notice on the chart, there is a wedge type pattern developing from the March low at 1238 that consists of rising lows.  These patterns tend to be bullish favoring an upside breakout.  Currently, the odds of exceeding the contract high at 1411.25 are 76 percent.  Unless there is a sell-off below 1286, the wave pattern points to prices advancing to 1465 or 1505.  In this event, be alert for a top, possibly a multi-year high occurring on August 24th or September 6th.  Historically, soybean futures are higher during August 58 percent of the time.  Next week, the odds are 60 percent that November futures will be higher.  

 Wheat Outlook:

     Wheat futures have held up well recently even though export business is expected to heat up with Russia and the Black Sea Region.  Russia resumed their grain exports this month after banning them for a year because of drought.  Meanwhile, U.S. export inspections were better than expected last week at 22.4 MB.  Harvest is progressing but slightly behind schedule at 75 percent.  The spring wheat crop improved one point to 74 percent in good-to-excellent condition.  Most of the support in wheat is from the trend following funds lifting 45 MB of their short position reducing it to 200 MB.  The longs of the index funds have fallen slightly to 1.035 BB.          

     December wheat has trended higher this week and traded past resistance at 751.75 to 754.75.  This appears to be a short-term top with support likely on a setback to 720 followed by 705.  Seasonally, the market tends to strengthen from the first week of August until mid September or mid October.  Currently, the intermediate-term wave pattern shows the potential of climbing to 780 followed by 810 and possibly 870.  Cycle analysis points to a top developing on August 29th, September 8th or September 27th.  Historically, wheat futures are higher during August 68 percent of the time.  Next week, the odds are even as to whether the market will be higher or lower. 

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