On The Money Grain Commentary 8-30-12

Corn Outlook:

     Weather has run the gauntlet in corn.  The recent Pro Farmer crop tour pegging the national corn yield at 120.25 bpa reaffirms the damage caused by the historic drought this summer.  However, media coverage of the drought is fading leaving the market with little fresh news on its plate.  Harvest is beginning and six percent complete.  Yield results will be monitored closely against private estimates.  Currently, we are transitioning from a supply to a demand driven market.  Export inspections were disappointing last week at 14.4 MB, a sign that higher prices are weighing on demand.  Meanwhile, the trend following funds are bullish as they added 175 MB to their long position increasing it to 1.405 BB.  The index funds are long 1.795 BB.    

     December corn fell to 793.25 on Wednesday from where a reversal occurred.  Resistance is expected at 828.  Exceeding this level, preferably a close, is needed to verify that the correction from 849 has ended, and that we are headed to the longer-term targets at 868-873 or 888-895.  This should wrap up the rally from 499.  In addition, the long-term continuation chart shows it has the potential of completing the advance from 2008 and 2000.  Cycle analysis points to a top occurring during mid September depending upon whether the pullback from 849 is over.  During September, corn futures are down 74 percent of the time.  Next week, the odds are 60 percent that December corn will be lower. 

Bean Outlook:

      Rain expected from Hurricane Isaac will benefit late-planted soybeans in the lower Midwest and Delta.  However, it is late in the growing season and any boost to yields will be limited.  Pro Farmer’s tour estimate of 34.8 bpa indicates that the summer drought has taken a toll on the soybean crop.  While demand may be starting to ease because of historic high prices, as evident from weaker inspections of 17.4 MB, it has not cooled enough to thwart the bulls.  China remains a strong buyer as they took 10.9 MB last week.  Meanwhile, the trend following funds remain bullish as they added 120 MB to their long position increasing it to 1.080 BB.  This is 45 MB short of the record set in May at 1.125 BB.  The longs of the index funds rose 15 MB to 595 MB.      

     November soybeans fell to 1701 on Tuesday, turned up and traded to a new contract high at 1771.25 Thursday.  This was near a target mentioned in previous comments at 1775.  However, the short-term pattern shows that we will likely move upward to 1787, 1798 or 1815.  This stands the chance of completing the advance from 1244.75 and possibly the low made last December at 1115.75.  In addition, the wave pattern of the long-term continuation chart shows the potential of ending the rally from late 2008 and 1999.  More will be mentioned as developments unfold.  A top could occur during mid September.  Right now, a decline below 1701 is needed for evidence of a peak.  During September, soybean futures are down 63 percent of the time.  Next week, the odds are 90 percent that November soybeans will be higher.

 Wheat Outlook:

     Wheat has followed corn’s direction during the past couple of weeks.  However, optimism is rising that Russia will restrict exports because of a smaller crop.  Currently, Russian wheat is approximately $50 per ton cheaper than U.S. origin.  Export inspections were sluggish at 18.8 MB and running below the pace needed to reach USDA’s projection of 1.2 BB.  Spring wheat harvest is winding down at 89 percent complete compared to the average of 57 percent.  In other developments, rainfall from Hurricane Isaac will benefit wheat seeding.  Last week, the long position of the index funds rose 5 MB to 90 MB, while the longs of the index funds fell 10 MB to 930 MB.   

     December wheat fell to 871.25 on Tuesday from where there was a recovery.  Provided it holds, a rally past 953.25 to 973, 990 or 1012 is expected.  This should wrap up the rally beginning in May at 629.5.  The cycles point to a top occurring during mid September.  During September, wheat futures are higher 58 percent of the time.  Next week, the odds are 70 percent that December wheat will be lower.    

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