On The Money Grain Commentary 8-15-13

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Corn Outlook:

USDA caught traders off guard on Monday when they lowered their yield projection on corn to 154.4 bpa from 156.5 bpa in July.  Some expected it to be raised.  This put production at 13.7 BB with 2013 ending stocks of 1.837 BB.  A record crop of 13.1 BB was set in 2009.  Going into the report the trend following funds were sporting a record short position of 940 MB which precipitated Monday’s gains.  Additional support came Thursday from FSA preventative planting acres reported at 3.4 million.  Meanwhile, the crop ratings were unchanged at 64 percent in good-to-excellent condition and compares to the five-year average of 59 percent.  This infers the USDA may raise their yield estimate in September.  The crop lags in development with Iowa, Minnesota, and Nebraska being the most vulnerable to an early frost.  Export inspections were 14.7 MB.

December corn bottomed at 445.75 on Tuesday ending the decline from the high made in July at 528.25.  This met a target mentioned in last week’s comments.  There is a chance that the sell-off from 571 is over as well, but the fundamentals are not supportive of this scenario.  Prices rebounded to 475.5 on Thursday and may work slightly higher.  However, the recovery should end by August 20th.  If there is a close beyond 490, a more supportive pattern may unfold in which prices could rise to 508.  Otherwise, the trend is down with the potential for the decline continuing to 420 or 412.  A more bearish pattern points to 393.  In this event, an important low is unlikely to develop until September 23rd or September 30th.  Next week, the odds are 90 percent that December futures will be lower.

Bean Outlook:

     Soybean futures surged on Monday from the USDA lowering their yield estimate to 42.6 bpa from 44.5 bpa last month.  Production is forecast at 3.255 BB with 2013-14 ending stocks of 220 MB.  This is the third biggest crop trailing 2010 and 2009.  While domestic stocks-to-usage remain in the lower third of the twenty-year range, world stocks-to-usage are in the upper third at 26.8 percent.  This suggests that unless a shortfall develops in South America this winter or an early frost occurs in the Midwest reducing yields, supplies are abundant.  Prices scored additional gains on Thursday from the FSA reporting preventive planting acres at 1.6 million.  In other developments, the ratings were unchanged at 64 percent in good-to-excellent condition and compares to the five-year average of 58 percent.  Like corn, the crop lags in development with Iowa, Minnesota and Wisconsin most vulnerable to an early frost.  However, unless one occurs, the chances are the USDA will raise their yield estimate as the ratings have been steady since mid July.  Export inspections were lethargic at 3.4 MB with China taking a token shipment.  Last week, the trend following funds sold 160 MB putting them short a modest 5 MB.

      November soybeans took a one day breather in the rally from 1162.5 on Wednesday and fell to 1213.  Prices turned up and surged to 1269 Thursday.   Additional resistance is expected at 1276 with 1290 probably the extreme.  As it stands now, the wave pattern shows that we could stay in a trading range until August 26th or as late as September 6th.  This would fit the bill as there are concerns of dry weather in the central Corn Belt and anxiety of and an early frost.  In addition, there is a seasonal tendency for prices to peak in early September.  Meanwhile, the longer-term pattern shows the market is at risk for falling below 1162.5 to 1100 or 1040 and, maybe, 950.  In this event, a major low may not occur until September 27th, October 4th, and it could be as late as October 23rd.  For now, a rally beyond 1333 is needed to break the long-term downtrend.  Next week, the odds are 70 percent that November soybeans will be higher.

 Wheat Outlook:

Wheat managed to muster support from the USDA reducing their 2013-14 ending stocks estimate to 551 MB.  Exports are promising with inspections last week at 23.7 MB.  At the current pace, shipments will be 1.220 BB compared to USDA’s projection of 1.100 BB.  Meanwhile, a note of caution is warranted about becoming too optimistic as there has been a decline in the pace of shipments during the past three weeks.  In other developments, spring wheat harvest has begun and is 6 percent complete compared to the average of 24 percent.  Last week, the funds increased their short position 10 MB to 385 MB.  Although the fundamentals may be improving for wheat, it will likely take its direction from corn.

December wheat bottomed on Wednesday at 635.5 which is likely a short-term low.  This was near a target mentioned in previous comments at 630.  Resistance is expected on a bounce near 658-663.  Be aware that divergence is showing on the momentum indicators which is friendly.  However, unless there is a close beyond 679.75 setting a higher high, the trend is down with the potential of falling to 623 or 603.  In this event, a important bottom could occur on August 23rd or September 6th.  Next week, the odds are 70 percent that December wheat will be higher.

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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.