On The Money Grain Commentary–9-1-11

Corn Outlook:

     Heat stress that occurred during July shows as yield prospects are growing dimmer.  Late planted corn will prove to be the biggest casualty as harvest progresses.  Yield reports, so far, are disappointing.  Currently, 54 percent of the corn crop is rated in good-to-excellent condition, a decline of 3 percent from the previous week.  This is the worst rating at this time of the season since 2005.  Our yield model shows that the final yield for the corn crop could be 143.9 bpa.  Meanwhile, exports are sluggish at 27.9 MB and struggling to meet USDA’s projection of 1.825 BB.  In other developments, the trend following funds turned more bullish as they added 40 MB to their long futures position increasing it to 1.170 BB.  The longs of the index funds stand at 1.755 BB.     

     December corn set a new contract high on Monday at 779 and backed off sharply to 737.5 during Thursday’s session.  Additional support is at 724.  Monday’s high met targets at 760 and 770.  Last week’s commentary mentioned that the wave pattern was unfolding in a manner showing the potential of trading to 810 or possibly 870.  This is still the case unless there is a sell-off below 706.25.  This event would break the series of setting higher highs and higher lows from the July low at 575.5.  Right now, my concern is the market briefly traded beyond the upper boundary of the channel line and has closed below it.  Frequently, this forewarns of an important top.  Be advised that when prices peak, the longer-term pattern shows it having the potential of being a multi-year high.  In September, corn futures close lower 73 percent of the time.  Next week, the odds are 60 percent that December corn will be lower.

Bean Outlook:

             Fears have mounted that soybean prospects are shrinking because of heat stress during July and August.  In addition, there is limited rainfall in the forecast that will cause further crop deterioration.  The ratings continue to slip with 57 percent of the crop in good-to-excellent condition compared to 64 percent a year ago.  Meanwhile, double-cropped soybeans are in dire need of moisture.  Traders are anxious about additional cuts in new crop supply coming when domestic stocks are already tight.  Export inspections improved slightly at 8.2 MB with China taking 4.4 MB.  In other developments, the index funds are becoming more aggressive as they bought 250 MB increasing their long futures position to 475 MB.  The longs of the index funds stand at 820 MB.    

      November soybeans rallied to a new contract high at 1465 on Wednesday, which was a target mentioned in previous comments.  This appears to be a short-term top with support likely on a setback to 1425.  Once the correction ends and unless there is a decline below 1403, the market should continue upward to 1505 and possibly 1575.  Look for a top during mid September or the last week of the month which could be a multi-year high.  Historically, soybean futures close lower in September 63 percent of the time.  Next week, the odds are 90 percent that November soybeans will be higher. 

 Wheat Outlook:

     Wheat is mostly following the direction of corn.  However, it has problems of its own as spring wheat harvest is lagging at 50 percent complete compared to the average of 71 percent.  Disappointing yields are being reported.  In addition, dryness continues to plague the southern Plains, which could hinder planting that is just around the corner.  Export inspections were decent at 23.4 MB and above the average needed to reach USDA’s target of 1.1 BB.  Meanwhile, the trend following funds are becoming less bearish as the lifted 25 MB of their short futures position reducing it to 200 MB.  The long position of the index funds stands at 1.025 BB.        

     December wheat peaked on Monday at 805.5, which was near a target mentioned in previous comments at 810.  Since then, the market has fallen below short-term support at 762 increasing the chance that a seasonal top has occurred early.  This is especially the case on a close below 743 as it will turn the intermediate-term trend lower.  Right now, the market is straddling a fence.  In September, wheat futures close higher 58 percent of the time.  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.