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Unless early frost becomes a legitimate concern, we are probably seeing the last weather related rally in corn. Until midweek, the bulls saw red from a warmer, drier forecast through the end of August. Prices have risen 9.2 percent since last week from the trend following funds lightening their record short corn position totaling 940 MB. While the crop is through pollination, some yield reduction could occur because of dry conditions in portions of the central Corn Belt. Meanwhile, a big crop is still expected. Last week, the ratings fell 3 points to 61 percent of the crop in good-to-excellent condition and compares to the five-year average of 56 percent. Ag Watch’s yield model puts the national yield at 157.9 bpa. suggesting that 2013-14 ending stocks should be at least 1.7 BB. In other developments, export inspections were lethargic at 7.0 MB.
December corn traded to 486.75 on Tuesday which stands the chance of ending the recovery from 445.75. Frequently, when corn rallies in early August, it peaks during the third week of the month. At this time, there are one of two possible directions the market will likely take. First, if the recovery is done, we are in a position for setting a new low and heading to 420-412. In this event, a bottom can be expected around the first or second week of September. The other pattern is more positive for the intermediate-term pointing to support at 461 followed by a rebound past 486.75. However, a close below support infers the first pattern is the one that is unfolding and that lower prices are forthcoming. Next week, the odds are 80 percent that December futures will be higher.
It has been pedal to the metal in soybeans since early August from concerns of dry weather forecast in the central Corn Belt through the end of the month. Weather during August is the most critical stage of development for soybeans. The spark igniting the latest price surge is from the trend following funds liquidating their short position of 5 MB held a couple of weeks ago to one of being long 70 MB. Last week, the crop ratings fell two points to 62 percent in good-to-excellent condition. This is above the five-year average of 57 percent and infers that a decent size crop is likely unless conditions worsen considerably. While traders are more concerned about warmer temperatures forecast during late August, the states most behind in development that could suffer from an early frost are Iowa, Minnesota, Missouri and Wisconsin. Export inspections were better than expected at 5.2 MB, but China was a no show.
November soybeans traded to 1319 on Wednesday and are flirting with a top that ends the rally from the low set earlier this month at 1162.5. On the short-term chart, signs are flashing from the five wave decline that is visible on the break to Thursday’s low at 1283. In addition, the short-term momentum indicators have not followed prices higher, which has created divergence. Right now, a break below 1282 is needed to violate the uptrend. If it happens, a setback to 1260 or 1240 is in order. A decline below 1222 opens the door for a longer-term bearish pattern that has the potential for a sell-off to 1100-1085 or possibly 1040. In this event, prices could work lower until late September or early October. Currently, we are at the most overbought level since the market peaked in June at 1333. Meanwhile, if the bulls are successful in holding their ground and 1319 is exceeded, we could take a stab at 1333-1341. Next week, the odds are 70 percent that November futures will be higher.
Wheat future have been pulled higher recently by corn and soybeans. However, their gains are disappointing. Exports have been strong but the U.S. faces stiff competition as we are overvalued compared to our competitors. Inspections last week totaled 33.7 MB which was a marketing year high. Spring wheat harvest is progressing at 18 percent complete, but behind the average of 38 percent. The trend following funds have lightened their short position 15 MB reducing it to 375 MB. Look for wheat to continue to focus on corn for a direction.
December wheat rebounded to 658.75 on Wednesday where resistance was encountered. Unless we trade past 679.75 setting a higher high, the trend is down with prices likely headed below 635.5 to 623-618. Be alert for a bottom that occur during the first week of September. This stands the chance of ending the sell-off from the contract high made last November at 913. Next week, the odds are even as to whether December futures will be higher or lower.
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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.