On The Money Grain Commentary–8-18-11

Corn Outlook:

  The financial markets remain chaotic as there are many obstacles standing in the way of a global recovery.  Grain traders are keeping one eye on the outside markets while focusing on supply and weather with the other.  After declining for four weeks, the crop rating for corn was steady at 60 percent in good-to-excellent condition.  However, this is five points below the five-year average.  According to our analysis, this equates to a final yield of 149.6 bpa and compares to the USDA’s current estimate of 153.0 bpa.  Speculation is high that they will cut their estimate again in September.  Export inspections were 27.5 MB and slightly below the average needed to reach USDA’s target of 1.825 BB.  In other developments, the long position of the trend following funds fell 20 MB to 1.030 BB, while the longs of the index funds slid 75 MB to 1.770 BB.

     December corn traded to a new contract high at 733.5 on Wednesday and backed off.  Short-term, there could be a pullback to 700 or 694.  The correction should be over by next week.  Unless there is a close below 668, the longer-term trend is higher with the potential for a rally to 760, 770 or 785.  A more bullish pattern points to an advance to 870.  Cycle analysis shows a top occurring the second or last week of September.  When the market peaks, it has the potential of being a major top wrapping up the advance from the June 2010 low at 382.5.  One long-term pattern indicates it ending a long-term 40 year cycle that began in 1971.  Next week, the odds are 90 percent that December futures will be lower.

 Bean Outlook:

            Weather has been favorable for soybean development during August as the crop rating has held steady at 61 percent in good-to-excellent condition and compares to 66 percent a year ago.  Although crop conditions have stabilized, Mother Nature’s cooperation is needed the rest of the month, as stocks are tight.  Meanwhile, volatility in the financial markets could lead to erratic trading in soybeans.  Export inspections were sluggish at 4.2 MB with China taking a token 26,000 bushels.  In other developments, the trend following funds whacked 225 MB from their long position cutting it to 125 MB.  The longs of the index funds fell 35 MB to 805 MB.   

      November soybeans traded past resistance at 1355 to 1371 on Wednesday, which improves the chance for a trading beyond the contract high at 1411.25.  Short-term, the market is overbought and subject to a setback to 1335 or 1325.  Unless there is a decline below support at 1282, an advance to longer-term targets at 1465 or 1505 is expected which should wrap up the rally from the July 2010 low at 907.25.  Cycle analysis points to an important top developing during the first or last week of September.  Next week, the odds are 70 percent that November futures will be higher.

 Wheat Outlook:

     Wheat was supported early this week from the rally in corn and news of purchases by Saudi Arabia and Algeria.  However, prices have backpedaled because of volatility in the financial markets.  Spring wheat harvest has commenced and is running behind schedule at 13 percent complete compared to the five-year average of 39 percent.  Export inspections were 18.4 MB and below the average needed to reach USDA’s target of 1.1 BB.  The trend following funds liquidated 10 MB from their short position last week reducing it to 260 MB.  However, this is still a sizeable position and may spark a price rebound if corn continues higher.  The longs of the index funds fell 50 MB to 995 MB. 

     December wheat traded to 767.75 on Wednesday, which is likely a short-term top.  Support is expected on a pullback to 725.  Unless we fall below the low made earlier this month at 681.75, the intermediate-term trend is up with the potential for climbing to 780, 810 or possibly 840.  From a seasonal perspective, wheat futures generally work higher until mid September or mid October.  Next week, the odds are 70 percent that December futures will be higher.

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