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Hot temperatures with limited rainfall forecast until early September drove corn futures to a one month high early this week. The market’s strength came on the heels of soybeans and the trend following funds liquidating 150 MB of their short corn position reducing it to 790 MB. Prices have since cooled off as rain chances are higher going into Labor Day. The crop ratings have declined, but that is par for this time of the season. Currently, 59 percent of the crop is in good-to-excellent condition compared to 22 percent a year ago and the five year average of 56 percent. In the August Crop Report, USDA projected the national yield at 154.5 bpa. The recent Pro Farmer crop tour’s yield estimate was 154.1 bpa. Right now, the market is having its last weather hoorah before harvest. In other developments, export inspections were 12.0 MB.
December corn rallied to 508.25 on Monday and retreated into the gap area at 479 to 477 Thursday. Additional support is expected at 469 followed by 464. There is a strong chance that the recovery from the low set earlier this month at 445.75 is complete. So far, the pullback from this week’s high resembles a correction suggesting that a period of consolidation is likely. Look for resistance on a bounce to 492. A rally beyond 498 is needed to improve the odds of trading past 508.25. Otherwise, a close below 461 increases the chance of falling to a new low. Cycle analysis points to a trading range until the first week of September. This is usually the period when prices peak and head lower into the first week of October. There is a 74 percent chance of it happening with the potential for a sell-off to 430 or 412. Next week, the odds are 60 percent that December futures will be lower.
Soybean futures have soared to their highest level since September 1212 with concerns of warm, dry conditions. August is the most critical stage of development for soybeans. However, the anxiety may be overblown as evidenced by the trend following funds tacking on 245 MB to their long position in just one week increasing it to 315 MB. Before their buying spree ends, we may reach the level set in June at 585 MB. If history is an indicator, when the music stops, what you see falling past the window could be the piano! Recently, the crop ratings fell to 58 percent in good-to-excellent condition but are above last year’s rating of 30 percent and the five year average of 55 percent. In the August Crop Report, the USDA projected the national yield at 42.6 bpa while the recent Pro Farmer crop tour puts it at 41.8 bpa. To keep the bull running, a dry forecast is needed after Labor Day. In other developments, export inspections were meager at 2.4 MB.
November soybeans surged to 1409.5 on Tuesday forming a double top with last September’s high at 1409.75. A reversal occurred followed by a break to 1360.5 Thursday. While there is a chance that the rally from the low made earlier this month is done, the setback has the characteristics of a correction suggesting higher prices. Previous pullbacks in the advance have lasted only one day. We are currently in day two. The market needs to head higher going into the long Labor Day weekend, or the trend indicators will begin to turn down giving strength to the reversal that developed at 1409.5. This could cause the funds to bail on their longs. However, unless this happens, the short-term wave pattern leans to the advance continuing to 1428 and, maybe, 1440 before the rally from 1162.5 ends. In this event, be alert for a top occurring the week following Labor Day. Seasonally, soybean futures generally top in early September and trend lower 63 percent of the time into the first week of October. Next week, the odds are 90 percent that November soybeans will be higher.
Wheat has been a beneficiary of the rally in corn and wheat but is seeing an improvement in demand. Export inspections were 31.1 MB and above the average needed to reach USDA’s projection of 1.1 BB. Unless the pace of shipments slows, they are on track for 1.4 BB. Spring wheat harvest is progressing slowly at 42 percent complete compared to the average of 54 percent. Frost in South America may trim their production prospects. Meanwhile, the trend following funds remain bearish and have increased their short futures position 15 MB to 390 MB.
December wheat fell to 638 at the end of last week followed by a recovery to 676.5 on Monday. The trend indicators have turned up inferring that the sell-off from the contract high at 913 may be complete at 635.5. Seasonally, wheat futures rise into early October 58 percent of the time. In order to confirm that the sell-off is done, a rally past 676.5 is needed, which would post a higher high breaking the downtrend. Right now, this is still a work in progress as the market has backed off from this week’s high. Next week, the odds are 70 percent that December wheat will be 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.