On The Money Grain Commentary–8-4-11

Corn Outlook:

The debt-ceiling dilemma was laid to rest on Tuesday when the Senate approved to raise the debt limit to $2.4 trillion, the largest increase in history.  The grains rallied sharply after the announcement as if a weight had been lifted.  However, they have since slid on improving weather, signs of a double dip recession in the U.S. economy, and fear the European sovereign debt crisis is intensifying.  In other developments, the corn rating held steady at 62 percent in good-to-excellent condition, which is eight points below a year ago.  Export inspections were 32.0 MB and below the average needed to reach USDA’s projection of 1.875 BB.  Currently, we are on track for shipments of 1.785 BB.  Last week, the long position of the trend following funds grew slightly to 955 MB, while the longs of the index funds rose to 1.860 BB.  There is room for them to add if next week’s crop production report is bullish.

December corn surged past resistance at 703.75 this week and peaked at 718.5 on Wednesday.  However, prices stumbled Thursday falling to 688.  Additional support is at 678.  Seasonally, corn futures tend to move upward until mid August or the first week of September.  Unless there is a close below 665, the chances are for an advance past the contract high at 722.75 to 760, 770 or 785.  Be advised the long-term chart shows that this has the potential of being a multi-year high culminating the advance from the June 2010 low at 382.5.  In addition, it could be the end of a forty-year cycle beginning in 1971.  Next week, the odds 60 percent that December futures will be higher.

Bean Outlook:

Improving weather, a sluggish economy, and concerns that the debt crisis in Europe is intensifying tempered price gains in soybeans early this week.  Meanwhile, weather in August is crucial for yields, as the soybean crop is setting pods.  Temperatures are forecast to moderate in the Midwest during the next few days with scattered showers likely.  However, scorching heat and dryness took its toll during the last week of July as the soybean rating fell two points to 60 percent in good-to-excellent condition, down six percent from a year ago.  Missouri’s rating dropped the most, down five percent.  Export inspections were 5.7 percent with China taking 2.4 MB, their first appearance in five weeks.  Last week, the trend following funds increased their long position 35 MB to 425 MB, while the longs of the index funds grew 10 MB to 845 MB.

November soybeans rebounded to 1384.75 on Tuesday and have since backed off 1339.5.  Additional support is at 1317.  Like corn, the seasonal pattern for soybeans is for a move higher until mid August or the first week of September.  However, the soybean pattern is stronger.  As mentioned in previous comments, a wedge pattern has been developing from the March low at 1238 that consists of rising lows.  These are generally bullish patterns that favor an upside breakout.  Unless there is a sell-off below 1286 breaking the upward trend, the market is in a position for advancing past the contract high at 1411.25 to 1465 or 1505.  Next week, the odds are even as to whether November futures will be higher or lower.

Wheat Outlook:

Wheat futures followed corn this week.  Competition for business is increasing between the U.S. and the Black Sea region as Russia and the Ukraine have lifted a yearlong ban because of drought.  Inspections last week were less than expected at 16.1 MB and below the average needed to reach USDA’s projection of 1.150 BB.  Wheat harvest is slowly winding down at 81 percent complete compared to the average of 86 percent.  The crop rating for spring wheat fell four points to 70 percent in good-to-excellent condition and compares to 82 percent a year ago.  In other developments, the trend following funds turned more bearish as they increased their short position 45 MB to 245 MB.  Meanwhile, the index funds are long 1.040 BB.

December wheat traded to 764.5 on Tuesday followed by a pullback to 718.5.  Additional support is expected at 706.  The intermediate-term trend is up unless there is a close below this level.  From a seasonal perspective, wheat futures tend to trade higher until mid September or mid October.  Currently, the wave pattern points to prices rising to 780, 810 and possibly 870.  Next week, the odds are 70 percent that December futures will be higher.

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