On The Money Grain Commentary–7-7-2011

Corn Outlook:

     The bulls mustered a bounce in corn following the July 4th holiday.  However, the bears are still holding the edge.  Since April, the trend following funds have reduced their long corn position 675 MB to 895 MB.  The longs of the index funds have fallen 130 MB to 1.890 BB.  Large institutional investors are drifting away from commodities because of the Greek debt crisis and the uncertainty it has created.  In addition, Portugal’s bond rating has been downgraded and lawmakers are haggling about the debt ceiling in the U.S.  In other developments, the crop rating in corn improved one point to 69 percent in good-to-excellent condition, which is in line with the five-year average.  Export inspections were 34.5 MB and below the average needed to reach USDA’s projection of 1.9 BB.  China bought 540,000 tons of corn last week but the bulls may need a greater lift.

     December corn bottomed at 575.5 last week, a sell-off of 20.3 percent from the contract high at 722.75.  This is the greatest percentage decline since the advance began in June 2010 at 382.5.  Meanwhile, prices have recovered and expected to meet resistance at 650 or 665.  Time wise, the recovery is due to end on July 12th, although it could last until July 22nd.  The chance for a rally to a new high is slim but has not been eliminated entirely.  However, the CRB Index shows that most commodities have topped.  In order to rekindle the prospect for a new contract high, a close beyond 685 is needed.  Otherwise, failure of 575.5 warrants a move lower to 550 or 535.  Short-term support is at 600.  Next week, the odds are 80 percent that December futures will be higher.   

Bean Outlook:

            Soybean futures have drifted the past couple of weeks even though the USDA projects a 1.4 million reduction in acres from the March Intentions Report.  Weather is still a factor, but the market has struggled to move higher.  This is because demand from China has fallen, while large traders are troubled by the uncertainty of the sovereign debt crisis in Europe, in addition to the debt ceiling in the U.S.  Like corn, fund involvement in soybeans has diminished.  Last week, the trend following funds liquidated 75 MB from their long position reducing it to 105 MB.  Meanwhile, the index funds added 30 MB increasing their longs to 860 MB.  In other developments, the crop rating improved one point to 66 percent in good-to-excellent condition and is on par with a year ago.  Export inspections were lackluster at 4.5 MB with China being a no show.  Exports must pick up or USDA’s projection of 1.540 BB is in jeopardy.         

      November soybeans bottomed last week at 1286 and have since recovered.  Resistance is expected at 1345 followed by 1360.  Past comments have mentioned that a rising wedge pattern has been developing from the March low at 1238.  These are typically bullish patterns as they consist of higher lows.  There is a 76 percent probability for an upside breakout, but a close beyond 1375 is needed to verify it will occur.  In this event, look prices climbing past the contract high at 1411.25 to 1465 or higher.  Meanwhile, a sell-off below 1286 violates the pattern while a decline below 1238 turns the longer-term trend down.  Next week, the odds are 60 percent that November futures will be higher.

  Wheat Outlook:

     There is not much news in wheat.  Harvest is 56 percent complete compared to the five-year average of 52 percent.  The spring wheat rating improved one point to 73 percent in good-to-excellent condition.  In the meantime, prices have fallen to an area that is attracting foreign buyers.  This was reflected by export inspections rebounding to 26.1 MB, which is above the average needed to reach USDA’s projection of 1.050 BB.  Meanwhile, the trend following funds have increased their short position to 215 MB, the largest since last December.  The longs of the index funds stand at 1.040 BB.

     December wheat bottomed last week at 639 and has since recovered.  Resistance is expected at 640-650.  Seasonally, wheat futures tend to turn up during the first week of July and peak by mid month.  The recovery is due to end on July 13th.  Unless there is a close beyond 780, the chances are for a decline to 620 with a bottom likely during the first week of August.  At that time, the seasonal tendency is for a longer-term advance into mid October.  Next week, the odds are even as to whether December futures will be higher or lower. 

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