On The Money Grain Commentary 7-5-12

Corn Outlook:

     Dry weather in the Midwest continues as the newsmaker in the grains.  Crop conditions in corn plummeted last week falling eight points to 48 percent in good-to-excellent condition, a decline of 15 points during the past two weeks.  This is the lowest rating since the drought of 1988.  Ohio dropped the most falling 18 percent.  According to our yield model, the national corn yield is between 147.2 and 145.4 bpa.  Deterioration of the crop has whetted the appetite of the trend following funds as they added 150 MB to their long futures position last week increasing it to 255 MB.  Meanwhile, the index funds are reducing their exposure to commodities as their longs fell 95 MB to 1.920 BB.  In other developments, export inspections were 22.2 MB and below the average needed to reach USDA’s projection of 1.650 BB.

     December corn gapped higher to 713 on Thursday, which may be an exhaustion gap although the market closed near its high.  This was slightly above a target mentioned in previous comments at 710.  It is possible the rally from 506 and 499 may be near an end.  Under this scenario, a top could unfold at the end of the week.  Be aware that the rally during the drought of 1988 ended on July 5th.  However, a more bullish pattern is emerging showing prices rising to 732 or 755.  If it develops, we may not peak until the second week of July.  Right now, a decline below Thursday’s low at 685.5 means the market is running into trouble and losing momentum. When a top does occur, a sharp downward reaction is expected, possibly to 620 or lower.  Next week, the odds are 80 percent that December corn will be higher.   

Bean Outlook:

     Stressful weather is the top story in soybeans with traders factoring in how high prices could go if dry conditions persist in the eastern and southern Corn Belt.  The crop rating fell eight points last week to 45 percent in good-to-excellent condition, and is below last year’s rating of 66 percent.  Nebraska was down the most at 11 points.  Because of the deterioration of the crop, the trend following funds are turning more bullish as they added 75 MB to their long position increasing it to 985 MB.  Meanwhile, the longs of the index funds fell slightly to 750 MB.  Speculators fear that U.S. inventory will be drawn down to a level that sparks concerns of global food shortages, possibly igniting a jump in consumer prices.  Keep in mind this is an election year, and government intervention is not out of the question.  In other developments, export inspections were 13.8 MB with China taking 4.9 MB or 35 percent of shipments. 

      November soybeans gapped higher to 1529 on Thursday exceeding a target mentioned in previous comments at 1470 and 1520.  Currently, the short-term pattern shows prices rising to 1578.  Cycle analysis points to a top occurring during the second or possibly the third week of July.  For evidence of a top, a close below Thursday’s low at 1493 is needed.  In the meantime, be advised the longer-term chart shows that soybeans are in the later stage of the advance beginning in 2008.  When prices peak a sharp sell-off is expected.  Next week, the odds are 60 percent that November futures will be higher.

 Wheat Outlook:

     Wheat futures have been rising in sympathy with corn and soybeans.  Dry weather in the former Soviet Union and the prospect of increased wheat feeding in livestock rations is supporting prices.  Harvest is progressing quickly and 69 percent complete compared to the average of 43 percent.  The rating for spring wheat fell six points to 71 percent in good-to-excellent condition but is above last year’s rating of 70 percent.  Export inspections were 21.4 MB and above the average needed to reach USDA’s projection of 1.150 BB.    

     Like corn and soybeans, December wheat gapped higher on Thursday to 849.75 exceeding a target at 810.  Right now, the short-term pattern shows prices rising to 860-870.  Cycle analysis points to a top occurring during the second week of July.  When prices peak a sharp sell-off is expected.  Next week, the odds are even as to whether December futures 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.