If there is such a thing as the dog days of summer in a weather market, we are in it. The media has covered the drought of 2012 extensively, but it is no longer an everyday story. Crop conditions have plummeted this summer but are stabilizing. With a current rating of 23 percent in good-to-excellent condition, Ag Watch’s yield model puts corn yields at 116.5 bpa. Later this week, the USDA will shed light on their assessment of yields and production in the August crop report. However, the bigger question facing us now is the extent of demand destruction in the months ahead caused by corn prices at historic highs. Export inspections were 19.8 MB and below the average needed to reach USDA’s target of 1.6 BB. The trend following funds maintain a bullish stance as they added 60 MB to their long futures position increasing it to 1.115 BB. However, the index funds are shedding their exposure to commodities as their longs fell 40 MB to 1.785 BB.
December corn spent the past several days in a narrow range as traders’ evened positions heading into the crop report. On Wednesday, the market turned up from 792.5 and rallied to 829.75 Thursday. This exceeded the previous high made a week ago at 820.5. Support is at 810. As it stands now, a move upward to 845 is likely, which should end the advance from 506 and possibly 499. A more bullish outlook points to prices climbing to 875 or 895. A top could develop as soon as mid, although the cycles lean to later in the month. In the meantime, a sell-off below 792 forewarns that the rally is over. Next week, the odds are 60 percent that December futures will be lower.
While weather is a done deal for corn, it remains a factor for soybeans. Recent rainfall in the Midwest will offset some of the effects of the drought, but additional moisture is needed. The crop has suffered extensively this season as the ratings have fallen to 29 percent in the good-to-excellent category. Demand destruction will be an issue facing the market, but there are no signs of it yet. Export inspections were 12.7 MB with China taking 6.5 MB or 51 percent of shipments. However, shipments to them have backed off during the past month. The trend following funds have been less aggressive in soybeans recently as their long futures position fell 30 MB to 1.025 BB. This is down 90 MB from the high a couple of weeks ago. The longs of the index funds were down slightly to 605 MB.
November soybeans fell to 1555.25 on Wednesday and turned up. If you will notice on the chart, the market held the up trend line from 1244.75. It is important that we hold 1536, otherwise, if it fails, a lower low and a lower high will have occurred turning the trend down. As it stands now, the pullback from 1691.5 may be over, but there is a chance that prices will consolidate a while longer. Resistance is at 1640. A rally past 1663.25 is needed for evidence that the correction is complete and, in that event, a move higher to 1705 or 1750 is likely. Look for a top late August if this occurs. Next week, the odds are 60 percent that November futures will be higher.
Wheat is following corn and soybeans but is also underpinned from the prospect of shrinking global supplies as well as issues in Russia and Australia. Spring wheat harvest is zipping along at 47 percent complete with good yield results being reported. Export inspections were 20.9 MB and below the average needed to reach USDA’s target of 1.2 BB. Right now, shipments are on pace for 870 MB. The long position of the trend following funds is unchanged at 85 MB, while the longs of the index funds are up 10 MB to 955 MB.
December wheat fell to 883.75 on Wednesday and recovered to 932.75 Thursday. As you will notice on the chart, we closed above the downtrend line extending from 953.25. This suggests that the correction is over. Unless there is additional consolidation, a move upward to 987 or 1008 is expected which should end the advance from 629.5. This could occur as early as mid August although it may be closer to the end of the month. Next week, the odds are 66 percent that December futures 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.