On The Money Grain Commentary–8-11-11

Corn Outlook:

     The recent downgrade of the U.S. debt has shaken investor confidence in a struggling economy.  It sent worldwide panic throughout the financial markets causing a slaughter in equities.  Stocks fell 16 percent before conditions stabilized.  The cry among investors was, “get me out!” Meanwhile, corn weathered the storm during the sell-off as intense heat in July has increased uncertainty about production.  Currently, 60 percent of the crop is rated in good-to-excellent condition, which is five points below the five-year average.  The crop report reflected last month’s stress as USDA lowered harvested acres 500,000 and were aggressive in reducing their yield estimate 5.7 bpa to 153 bpa.  Ending stocks for 2011-12 were lowered to 714 MB giving the bulls ammunition.  In other developments, the trend following funds are maintaining a bullish stance and have increased their long corn position 95 MB to 1.050 BB.  The longs of the index funds are down slightly to 1.845 BB. 

     December corn fell to 668.75 on Tuesday followed by a 30-cent limit move higher to 718.5 on Thursday.  Short-term support is at 703.  Unless there is a decline below 665, the trend is up with the potential for climbing to 760, 770 or 785.  Meanwhile, a more bullish pattern points to prices rising to 870.  Cycle analysis shows a top occurring as soon as August 29th, although it will probably be closer to September 6th or September 15th, and could be as late as September 26th.  When prices peak, it has the potential of being a multi-year high.  One long-term pattern shows it ending a 40-year cycle that began in 1971.  Next week, the odds are 60 percent that December futures will be lower. 

Bean Outlook:

           Soybeans fared worse than corn during the downgrade of the debt rating as prices fell over seven percent.  However, the market should be on the road to recovery as weather during August is critical for crop development.  Currently, 61 percent of the crop is rated in good-to-excellent condition, which is slightly below the average of 62 percent.  In the crop report, USDA lowered harvested acres 500,000 and aggressively reduced their yield estimate 2.0 bpa to 41.4 bpa.  Ending stocks for 2011-12 fell to 155 MB leaving little margin for error.  In other developments, the trend following funds have trimmed their long soybean position 75 MB reducing it o 350 MB.  The longs of the index funds stand at 840 MB.

      November soybeans fell to 1282 on Tuesday breaking the June low at 1286.  Failure of this low violates the bullish wedge pattern that has been ongoing from the bottom made in March at 1238.  However, prices did not close below this level.  If it had, the longer-term trend would have turned down putting the bulls on notice of a top.  On Thursday, the market traded sharply higher to 1355 because of the bullish report.  Right now, a rally and close beyond 1377 is needed to put the market back on course for advancing past the contract high at 1411.25 to targets mentioned in previous comments at 1465 and 1505.  Next week, the odds are 60 percent that November futures will be higher.

 Wheat Outlook:

      Wheat futures suffered a ten percent loss because of the slide in equities but have since recovered.  News is scarce and the market is looking at the other grains, as well as the financial markets for a direction.  In the crop report, USDA left their ending stocks estimate for 2011-12 wheat virtually unchanged at 671 MB.  Harvest is 85 percent complete with 6 percent of the spring wheat crop cut.  Meanwhile, the trend following funds maintain a bearish stance as they have increased their short position 25 MB to 270 MB.  The longs of the index funds stand at 1.045 BB. 

     December wheat traded to 681.75 on Tuesday, which ended the decline from last week’s high at 764.5.  Prices rebounded to 751.25 on Thursday and provided 681.75 holds, they are in a position for a rally to 780 or 810.  Short-term support is at 715.  Seasonally, wheat futures usually trend upward until mid September or mid October.  Cycle analysis points to a top occurring on August 29th, September 8th or September 28th.  Next week, the odds are 66 percent that December futures will be lower.

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