Corn futures are awakening from the dog days of summer as prices are trending higher. During the past few weeks, speculation on corn yields has been all over the board. However, the Pro Farmer crop tour is shedding light on the severity of this summer’s drought. Their findings show that yields are down 16-48 percent from the three-year average of the states surveyed. The question facing us now is how much demand destruction will occur. Signs are emerging, as shipments are struggling to reach USDA’s export projection of 1.550 BB. In addition, the livestock industry has taken a beating from high feed costs forcing producers to send animals to slaughter early. Meanwhile, the trend following funds are bullish as they added 90 MB to their long futures position increasing it to 1.230 BB. The longs of the index funds are unchanged at 1.795 BB.
December corn bottomed on August 13th at 786 and rose 840 Tuesday setting a short-term top. This fell short of the contract high at 849. Support is at 808-800. The wave pattern shows that prices are in the later stage of their advance from the low set in May at 499. Unless there is a sell-off below 786, a rally to 868-873 or 888-895 is expected which should be a major top. The longer-term continuation chart shows that it has the potential of capping the advance beginning in late 2008. A top could occur as soon as the period of August 29th-31st if 849 is exceeded quickly. Otherwise, we will not likely peak until September 10th-13th. Next week, the odds are 80 percent that December futures will be higher.
Soybean futures have risen to an historical high even though there has been an improvement in crop conditions the past couple of weeks. The reason we are trading in new territory is there has been no let up in demand even at record prices. Export inspections last week were above estimates at 21.4 MB keeping shipments on track for exceeding USDA’s target of 1.350 BB. The Pro Farmer crop tour shows that pod counts are highly variable and down 13-47 percent from the three-year average of the states surveyed. In other developments, the long position of the trend following funds rose 15 MB last week to 960 MB, while the longs of the index funds were up 5 MB to 580 MB. Keep in mind that the long position of the index funds is down 33 percent from the peak in March and 42 percent from the record of 1.005 BB set in November 2010. This suggests that when buying from the trend following funds wanes, support may be sparse.
November soybeans traded to 1744.75 on Thursday where a reversal occurred ending the rally from 1587. The market is due for at least a two-day pullback in which support is likely at 1685. Later, prices are expected to climb to 1775, 1787, 1798 or 1815, which should wrap up the advance from 1244.75 and possibly the low made last December at 1115.75. In addition, the long-term continuation chart shows that it has the potential of ending the rally beginning in late 2008 and possibly 1999. We will have to see how the pattern unfolds. The cycles point to prices peaking on August 31st, while it could be as late as September 7th or September 17th. Next week, the odds are 70 percent that November futures will be higher.
Wheat futures are mostly following corn and soybeans but there are concerns of short supplies in the Black Sea region and that Russia may restrict exports. In addition, global supplies are tightening. Spring wheat harvest is 79 percent complete, which is well ahead of the average of 40 percent. Be advised that a large increase in winter wheat plantings are expected this fall as producers attempt to recoup losses from the drought this year. Export inspections were 23.4 MB and below the average needed to reach USDA’s target of 1.2 MB. At the current pace, shipments will be slightly over 1.0 BB. Last week, the trend following funds shed 20 MB from their long position reducing it to 85 MB. The longs of the index funds fell 15 MB to 940 MB.
December wheat traded to 926.25 on Tuesday setting a short-term top ending the rally from 857.25. Support should be found at 883. Later, prices are expected to rise past 953.25 to 973, 990 or 1012, which has the potential of ending the advance from 629.5. Cycle analysis shows that this could happen as soon as August 31st while it may be closer to September 7th or September 12th. 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.