Corn: Today was a day with a few more rumors and also possibilities for future corn support. Talk early this morning was that China is planning to purchase four or five cargos of U.S. corn. Similar rumors were talked about last week, but those were for only one cargo a piece, so this morning’s talk gained more traction. Should that export news be proven true, then there would be good reason to find support under this corn market.
In addition to new potential exports is the large pickup of DDG sales to China. (Rich goes into more detail of that below.) In the end, today kept corn prices relatively level, as it was China rumor talk vs. a potentially very high planting pace number this afternoon.
Both sides of the market were tested and once again, the support in December corn was held by only a quarter penny. This support found at 375-1/4 has proven strong enough in the past to suggest it will take solid fundamentally bearish news to break it. A planting pace number of 45% or above would be the number needed.
Most producers mentioned today that rains came across in small waves, allowing for most to be soaked up in a timely manor, which will put soil conditions in a very good state to start the growing season.
We all know the bearish fundamentals that have been talked about over the last two weeks, what we need are confirmed sales of U.S. corn to China, continued strong DDG sales and rising ethanol prices to keep support.
Another factor that has potential to support corn is speculative fund buying either here in corn or even in beans as we saw on good scale last week. Hedgers may once again need to lower their expectations of price this week as each passing day sees active selling at a lower price. This will continue to be true until that wall of selling is eventually taken out.
We will then be active sellers at 410 to 420. Buyers of corn will want to see the key support taken out, opening the door for another 15-cent slide to the next strong technical support. If support levels are taken out, we would then look to be active buyers around the 360 level for December…Ryan Ettner
Soybeans: A rumor that China bought corn and more DDG’s out of the U.S. provided support as did a general macro feel that funds were buying on inflation. After the close, Allendale’s weekly research meeting detailed the impact early planting can have on yields and acreage. You can listen to this report for free here.
The USDA reported a record corn pace but will not report any beans until next week. We believe that significant progress in the eastern belt has been made, and we would expect next weeks report will be bearish beans. If weather allows the early planting pace to continue, the odds will favor a higher than trend yield.
Offsetting this potential increasing supply is China’s insatiable demand for new crop, with nearly double the purchases made over last year. End result is that we can still expect about 330 million bushel ending stocks in 2010/11, up about 73% from old crop stocks. Ultimately we believe this will be long-term bearish with an 800 objective provided good weather. However, it will take a technical change in direction to cause funds to sell. Funds are currently long 146,000 contracts of beans, and if they decide to liquidate, it could be a very volatile move down.
Argentina farmers expected to strike May 1 is in alignment with a 3 day weekend and should have no impact on the market. The bigger news to monitor is the Argentine-China trade talks and Chinese weather. The last report on the street was China has agreed to increase its quality tolerance on Argentine bean oil, which would allow them to resume shipping. As for Chinese weather, they have had a very cold and wet spring much like the U.S. had last year. The outlook is for significant improvement after May 1. If delays continue after May 20, then we would be concerned…Bill Biedermann
Wheat: Was it a fat-finger trade in the wheat or was the lower move intentional? The word we received moments after July wheat futures tumbled to its low of 473-1/2 is it was intentional to reach a stop.
It was comforting to see how July futures were able to open and stay above psychological support of 500 per bushel but was soon dashed on the lack of solid fundamentals. Monday’s export inspections were atrocious and given solid new-crop conditions as good as they are it is difficult to be fundamentally bullish wheat.
Needless to say, it was difficult for new crop wheat to hang $1.445 above corn may have been a stretch. Given a spread close of $1.285 July wheat vs corn, it still represents a close above 50% retracement of $1.255. The other good news technically is to experience a close above the short-term uptrend for the beginning of the week. The bottom line is for wheat futures to close on a positive note for Tuesday. If not, then we turn bearish…Joe Victor
Bill Biedermann is Sr. Vice President at Allendale. Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Joe Victor is Vice President at Allendale. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.
