On The Money Grain Commentary 8-7-14

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Corn Outlook:

The sell-off in corn has slowed as the market has reached a level in which the bears are becoming cautious.  In the meantime, the bulls are reluctant to step up to the plate as they have been burned on too many occasions picking a bottom.  Wheat propped up corn this week because of tensions in Ukraine.  Meanwhile, the bears continue to hold the upper hand with the trend following funds adding 85 MB to their short position last week increasing it to 105 MB.  Currently, 73 percent of the crop is rated in good-to-excellent condition, down 2 points from the previous week.  According to Ag Watch’s yield model, the national yield is around 166.8 bpa compared to USDA’s estimate of 165.3 bpa.  However, there are many projections in the 170-176 bpa range.  Export inspections last week were good at 44.9 MB, but below the average needed to reach USDA’s target of 1.9 BB.

December corn bottomed on Monday at 361 setting a short or an intermediate-term low.  The market rebounded to 371.75 Wednesday where resistance was encountered.  A close above 362.5 at the end of the week would be the first higher weekly close since the week of June 20th, and implies that an intermediate-term low has developed.  If it happens, look for prices working sideways to higher until August 12th-14th, which coincides with the crop report.  Seasonally, corn futures tend to bottom in early August and rise until mid month followed by a decline through the end of the month.  Resistance is expected at 378-383.  If the crop report next week fails to whet the bears appetite, prices may continue upward to 396-400.  Longer-term, the wave pattern points to a sell-off to 337 with a bottom expected during the period of September 8th-12 or September 30th.  Next week, the odds are 60 percent that December corn will be higher.

Bean Outlook:

      Soybeans have rebounded from concerns of August weather.  However, the strength will likely be short lived as rain is in the forecast and the crop ratings remain unchanged at 71 percent in good-to-excellent condition.  USDA’s current yield estimate is 45.2 bpa.  However, some think that we are pushing 46.0 bpa.  Any way that you slice it, the crop is holding up well with no threatening weather in the forecast.  In other developments, export inspections were pathetic at 1.4 MB putting shipments in a close race to reach USDA’s projection of 1.620 BB.  Last week, the trend following funds lightened their short position by 65 MB reducing it to 265 MB.  For the moment, there is little fresh news with traders looking ahead at the August 12th Crop Report as the next mover and shaker.

      November soybeans struck a low on Monday at 1054 followed by a rebound to 1084.75 Thursday.  Additional resistance is at 1092-1100 while a test of the high at 1116.5 cannot be ruled out.  The recovery will likely end by August 14th.  If you will notice on the chart, a head and shoulders pattern may be unfolding from the low at 1055, the high at 1116.5, and the low at 1054.  Once the recovery is complete, the market should resume its decline to targets at 1035, 1017 or possibly 985.  Cycle analysis shows that this could occur as soon as August 25th, but it will probably be closer to September 3rd, September 10th or September 25th.  Seasonally, soybean futures tend to put in their harvest low in late September or early October.  Next week, the odds are even as to whether November soybeans will be higher or lower.

 Wheat Outlook:

Wheat got a shot of steroids this week as quality issues have risen with the European crop, along with increased geopolitical tensions in Ukraine because of Russia amassing troops near their border.  These factors instigated this week’s bounce.  Meanwhile, a larger crop is expected in Russia and U.S. exports are stagnant.  Inspections last week were a paltry 12.9 MB.  Shipments for the season are off to a slow start and lag the pace needed to reach USDA’s target of 900 MB.  If it continues, we could fall 100 MB short of their projection.  In other developments, harvest is winding down at 90 percent complete.  The crop ratings for spring wheat are unchanged at 70 percent in good-to-excellent condition.  Meanwhile, the trend following funds added 70 MB to their short position last week increasing it to 440 MB.  While not near the record, the bounce this week could prompt short covering.

Although the wave pattern is not clear, the sell-off beginning in May at 765 in December wheat appears to have ended in late July at 542.25.  The weekly chart also concurs with this assumption.  If you will notice on the chart, the market has risen past 584.5 to 591, setting a higher high turning the trend up.  Wheat futures tend to bottom in early August and move upward until mid month, the middle of September or early October.  Short-term support is expected at 567 or 561.  For the intermediate-term, the market could work higher to 603 or 627.  The cycles point to a top as soon as August 15th, but a more meaningful high may not develop until September 9th or September 19th.  Next week, the odds are 70 percent that December wheat will be higher.

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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.