On The Money Grain Commentary–8-25-11

Corn Outlook:

      Grain traders have put aside concerns regarding the weakening global economy and are focused on production prospects.  The corn crop continues to deteriorate as reflected by conditions falling three points to 57 percent in the good-to-excellent category.  This is seven points below the five-year average.  The greatest decline was in Illinois with the rating falling by eight percent.  Based upon the ratings, our analysis shows the final corn yield at 146.3 bpa.  Harvest has begun in the Midwest and reports are disappointing, thus far.  Export inspections were 29.513 MB and will struggle to meet USDA’s projection of 1.825 BB.  Meanwhile, the trend following funds are turning more bullish as they added 100 MB to their long position that currently stands at 1.130 BB.  The longs of the index funds fell 35 MB to 1.735 BB.   

     December corn traded to 748.75 on Wednesday setting a new contract high.  This appears to be a short-term top in which support is expected on a pullback to 727.  If you will notice on the chart, a series of higher highs and higher lows are occurring from last month’s low at 575.5.  This means the market is in a strong up trend.  Unless there is a sell-off below 706, the advance is expected to continue to 760, 770 or 785.  However, the way in which the wave pattern is unfolding suggests there is a chance of reaching 810 or possibly 870.  Cycle analysis points to a top developing on September 6th, September 15th or September 26th.  When the market peaks, it stands the chance of being a multi-year high ending a long-term 40 year cycle that began in 1971.  Next week, the odds are 80 percent that December futures will be higher.   

Bean Outlook:

       Weather in the Midwest is mostly dry which is supportive for soybean futures.  Much of the double-cropped beans in the Southeast have suffered because of extensive heat and dryness during July and early August.  Hurricane Irene may offer some relief.  Last week, the ratings fell two points to 59 percent in good-to-excellent condition and compares to 64 percent a year ago.  Export inspections were 10.8 MB with China taking 2.5 MB.  After dumping 225 MB from their long position a couple of weeks ago, the trend following funds added 100 MB last week increasing it to 225 MB.  The longs of the index funds are 800 MB.     

      November soybeans rallied to 1403.25 on Wednesday but were unable to climb past the contract high at 1411.25.  A short-term top appears to have developed in which there could be a pullback to 1374-1367.  Once the correction is over and unless there is a decline below 1345, prices should continue upward to 1465 or 1505.  Cycle analysis shows this occurring on September 7th or September 26th.  Like corn, the long-term pattern reveals that when prices peak; it could be a multi-year high.  Next week, the odds are 70 percent that November futures will be higher.

 Wheat Outlook:

      Wheat futures are underpinned from the strength in corn and concerns of conditions being too dry in the southern Plains when winter wheat planting commences.  Meanwhile, spring wheat harvest is underway and 29 percent complete compared to the five-year average of 56 percent.  Low quality and poor yields are being reported.  Export inspections were disappointing at 17.4 MB and below the average needed to reach USDA’s projection of 1.495 BB.  In other developments, the trend following funds liquidated 35 MB from their short position reducing it to 225 MB.  Additional short covering is likely.  The longs of the index funds grew four MB to 1.015 BB.      

     December wheat traded to 791 on Wednesday followed by a pullback to 762 the following session.  Additional support is at 754.  The rally to 791 met a target at 780.  However, unless there is a decline below 731, there is additional upside potential to 810 or possibly 870.  Seasonally, wheat futures tend to work higher until mid September or mid October.  Cycle analysis points to a top occurring on September 8th or September 27th.  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.