On The Money Grain Commentary 7-31-14

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Corn Outlook:

Corn futures rebounded briefly on Monday from strength in soybeans.  However, the bounce was short lived lasting only two days.  This has been the M.O. (modus operandi) for all of the rebounds in this long-term decline.  Crop conditions are good, although they fell one point last week to 75 percent in good-to-excellent condition.  A recent survey of traders showed that they expect a yield of 170.5 bpa compared to USDA’s current estimate of 165.3 bpa.  Ag Watch’s yield model puts the yield at 168.0 bpa.  Export inspections last week were 31.7 bpa, below the average needed to reach USDA’s target of 1.9 BB.  Current shipments reflect that they may fall slightly short of their projection.  Last week, the trend following funds sold 95 MB of corn putting them short 20 MB.  This is their first short position since February.  Looking ahead, the crop report on August 12th will be the next mover and shaker in the grains.

Last week, December corn bottomed at 364.25 followed by a recovery to 377.75.  Prices have since stalled.  Additional resistance is at 380-384.  If you will notice on the chart, a five wave pattern appears complete in the decline from last month’s high at 457.25 and, maybe, the April high at 517.  Five wave patterns usually imply that a move is near an end unless it is extending.  Seasonally, corn futures tend to bottom in early August, at the end of the month, or in late September.  Right now, a rally beyond 395.75 is needed to break the downtrend suggesting a broad based recovery is about to get underway.  Otherwise, a decline below 364.25 means that the sell-off is extending and projects falling to 337 or 327.  In this event, a bottom could be expected around August 16th, August 27th or September 10th.  During August, corn futures are higher 63 percent of the time.  Next week, the odds are 70 percent that December corn will be lower.

Bean Outlook:

      Soybeans briefly came to life on Monday from the report of a 486,000 ton new crop sale to China.  However, the strength quickly faded Tuesday as weather remains favorable for most of the Midwest.  For the past several weeks, China’s interest has exclusively been for new crop soybeans.  Inspections last week were 4.1 MB with China absent for old crop shipments.  Last week, the crop rating for soybeans fell two points to 71 percent in good-to-excellent condition.  This was the largest point drop for this season.  However, the tendency is for the ratings to decline from July through harvest.  Looking at the forecast into August, no inflammatory weather is on the horizon.  In other developments, the trend following funds increased their short futures position 45 MB last week to 330 MB, a new record.

November soybeans rebounded to 1116.5 on Tuesday and backed off to 1075.5 Thursday.  As it stands now, the recovery from the low at 1055 is probably done.  If so, resistance can be expected on a bounce to 1092-1100.  For the intermediate-term, the market is on track for a decline to 1035, 1017, or to a longer-term target mentioned in previous comments at 985.  A bottom could occur as soon as August 12th or August 18th, but it may be closer to September 3rd or September 30th.  Seasonally, soybean futures tend to put in their harvest low in late September or early October.  During August soybeans are higher 58 percent of the time.  Next week, the odds are 60 percent that November futures will be higher.

 Wheat Outlook:

Wheat is featureless as there is not a great deal of fresh news.  Harvest is winding down at 83 percent complete, while 70 percent of the spring wheat crop is rated in good-to-excellent condition, unchanged from a week ago.  Russian wheat remains a thorn in the side of U.S. wheat as their values continue to fall.  Export inspections last week were lethargic at 14.5 MB and below the average needed to reach USDA’s projection of 900 MB.  At the current pace of shipments, we will fall 75 MB short of their target.  In other developments, the trend following funds increased their short position 45 MB last week to 370 MB.  With little fresh news on the horizon, look for wheat to follow the whims of corn and soybeans.

December wheat fell to 542.25 on Tuesday where support was found.  Unless there is a rally past 584.5 setting a higher high, the market remains entrenched in a strong downtrend with the potential for falling to 532, 523 or possibly 506.  Cycle analysis points to a bottom as soon as August 5th, although it may be closer to August 15th and could be as late as September 3rd.  During August, wheat futures are higher 68 percent of the time.  Next week, the odds are even as to whether December wheat will be higher or 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.