On The Money Grain Commentary 8-2-12

Corn Outlook:

     By now, everyone in the universe is aware of the drought in 2012, as the news media has blitzed it on a daily basis.  The fact of the matter is that the damage to the corn crop has been done with the question being yield loss.  The crop report on August 10th may shed some light. With a crop rating of 24 percent in good-to-excellent condition, Ag Watch’s yield model shows the national yield at 118.3 bpa.  Meanwhile, prices have reached a level where demand destruction is beginning.  During the past three weeks, export sales have totaled a meager 9.5 MB, or an average of 3.16 MB per week.  In addition, North Carolina pork producers announced their intention to import corn from Brazil.  However, that has not deterred enthusiasm from the trend following funds as they bought 270 MB of corn last week increasing their long futures position to 1.055 BB.  The longs of the index funds fell 35 MB to 1.825 BB.  This is down 12 percent from the peak set in May.    

     December corn traded to 820.5 on Wednesday, August 1st, which is either a short-term top or a peak that ends the rally from 506.  Last week’s comments mentioned that a top could occur on August 2nd.  A break below 781 is needed for evidence that the rally from 506 is over and, in the event, a sideways to lower pattern is expected with support likely at 745.  In the meantime, if 820.5 is exceeded, look for a move upward to 835-845.  Either way, the market is expected to trade higher to 875 or 895 before the advance from 499 is over.  As it stands now, a major top in corn is not likely until August 31st or September 13th.  Next week, the odds are 60 percent that December futures will be higher. 

Bean Outlook:

      While any chance for improvement in corn is largely behind us, soybeans are a different story as they could recover with a good rain.  The crop is in its most critical stage of development with 55 percent setting pods.  A widespread rain event in the Midwest would reverse the trend in crop conditions that currently stand 29 percent in the good-to-excellent category.  However, it needs to come quickly.  Although prices have risen to a record level, demand destruction has not set in yet.  Export inspections last week were 15.4 MB and still above the average needed to reach USDA’s projection of 1.340 MB. However, shipments to China totaled 4.1 MB and have been declining for four weeks.   The long position of the trend following funds fell 50 MB to 1.055 BB last week while the longs of the index funds declined 60 MB to 610 MB.  Be advised that the long position of the index funds is down 29 percent from the peak set in March as they are reducing their exposure to commodities because of the slowing global economy.  Now, here comes the rub.  When the buying spree from the trend following funds ends, where will soybeans find support?    

      November soybeans peaked on Tuesday at 1663.25 ending the recovery from 1536.  Since topping on July 23rd at 1691.5, the market has been consolidating working off an overbought condition.  This may continue until August 7th.  Right now, the wave pattern shows the chance for advancing to 1705 or possibly 1750 before the rally from 1244.75 is complete.  This could occur as soon as August 13th but possibly not until August 23rd.  For now, a decline below 1536 is needed to inflict technical damage and turn the trend down.  As I have mentioned in previous comments, soybeans, longer-term, are in the mature stage of their advance from the 2008 and 2002 lows.  Next week, the odds are even as to whether November futures will be higher or lower.

 Wheat Outlook:

     Corn and soybeans are the primary drivers of the wheat market while additional support comes from crop concerns in Australia and Russia.  Spring wheat harvest is progressing quickly and 28 percent complete compared to the five-year average of 3 percent.  Export inspections were 18.6 MB and below the average needed to reach USDA’s target of 1.2 BB.  Right now, we are on pace for shipments slightly over 800 MB.  Last week, the trend following funds bought 30 MB increasing their long position to 85 MB.  The longs of the index funds are unchanged at 945 MB.  However, this is down 16 percent from the peak set in April.         

     Since peaking in July at 953.25, December wheat has been consolidating bound in a range from 864.25 to 933.25.  The cycles show the market could trade in a sideward pattern until August 7th-9th with a slight chance of falling to 836.  Longer-term, a rally 987 is expected which should end the advance from 629.5.  This could occur on August 31st or September 7th.  Next week, the odds are 70 percent that December futures 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.