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Harvest has begun in the southern Corn Belt with phenomenal yields being reported. This has had a mellowing effect on the bulls. Reports of corn yielding 200-240 bpa have been the norm rather than the exception. However, as harvest progresses north, yields will be more variable. USDA raised their yield estimate in September to 155.3 bpa from 154.4 bpa last month. Production is forecast at 13.843 BB with ending stocks of 1.855 BB. Export inspections for the new marketing year are off to a slow start at 9.8 MB. In other news, the trend following funds have added 45 MB to their short position increasing it to 675 MB.
December corn made a low last week at 457 and recovered to 473.5 on Wednesday where selling was encountered. Resistance is expected at this level but, if exceeded, we could work higher to 482. Seasonally, corn futures tend to work lower until the first week of October. At this time, I do not foresee the market deviating from the norm. Unless there is a rally beyond 508.25, the trend is down with the potential for a sell-off to 430 or 412. A more bearish pattern points to a decline to 380. Cycle analysis shows a bottom developing around September 30th, while it could be as late as October 21st. Next week, the odds are 80 percent that December corn will be lower.
For the past several weeks, traders have been factoring in a yield reduction because of dry weather in August. This was confirmed on Thursday when the USDA lowered their yield estimate in September to 41.2 bpa from 42.6 bpa in August. Keep in mind that the ratings fell 11 percent during that time with a 3 percent drop being the norm. Production is forecast at 3.149 BB with ending stocks of 150 MB. Meanwhile, export inspections for the new marketing year are off to a meager start at 2.2 MB. During the next couple of weeks, a cool down is forecast but frost is not in the picture. The long position of the trend following funds has risen to 600 MB, which is their largest since November of 2012.
November soybeans traded in a wide range on Thursday from 1398.75 to 1341.25. Since last month, the market has been confined in a range from 1409.5 to 1335. A triple top has developed with the August high and the high made in September of 2012 at 1409.75. Past history shows that trading beyond a triple top is a difficult task to accomplish. Right now, a decline below 1335 is needed to break the uptrend. In the meantime, if 1409.75 is exceeded, a new leg higher is unfolding that shows the potential for advancing to 1530 or 1580. Meanwhile, the bulls could quickly find themselves in an awkward position, as they are heavily committed to a long position and cannot afford to see the momentum falter when prices are within reach of setting a new high. Next week, the odds are 70 percent that November futures will be lower.
Export demand in wheat is improving but the market is stymied from weakness in corn. Inspections last week were 31.5 MB and, if the pace continues, are on track for 1.455 BB. Meanwhile, USDA projects ending stocks at 561 MB which is down from 718 MB a year ago. While this is friendly on the surface, world stocks rose 1.9 percent to 176.2 million tons. The trend following funds remain bearish and have increased their short position to 375 MB.
December wheat bottomed last week at 636.75 and has done little since. Seasonally, the market usually rises until early to mid October, but that has not been the case this year because of weakness in corn. The longer-term wave pattern shows that we are in the final stage of the sell-off from the contract high made last November at 913. For confirmation of a bottom, prices must climb past 676.5 which would set a higher high. Until then, the trend is down with the market likely headed 623 or 610. Watch for a bottom around September 24th or October 1st-4th if we are lower. Next week, the odds are 60 percent that December futures will be down.
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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.