Corn: In almost a carbon copy of Friday, corn sold off on another move higher in the dollar. Most of the action was similar to the end of last week, just on a smaller scale. There are a few factors that could step in to give us a turnaround on Tuesday.
The dollar, which has been pushed higher by a fall in the euro, is nearing its first resistance level since it started to turn higher back in early December. It has been a long ride for the dollar higher all this time, but it has finally hit some important resistance points. Overnight, it hit a high just one tick off of resistance from April 20, 2009. If that resistance is held and the dollar sets back, that can be a start of a bounce.
Not only has a lower dollar caused some fund selling across all commodities the last two trading days, but ethanol has regained its correlation to crude oil as well. With the recent slide in crude, there has been a pullback in rising ethanol prices.
Current weather forecasts suggest a good continuation and near ending of corn planting as well as good development. Monday's planting progress was expected to come in at 89%. It also held corn’s first good to excellent rating. The trade was expecting 60% to 70% while the government released a 67% figure. This is the earliest time a crop rating has been released. Today’s number, good as of Sunday the 16th, is as four days ahead of the May 20 previous early start from 2007. Today’s 67% rating is not the best start in history as some would have suggested.
With the day session unable to take out the overnight spike lower, it is hard to find much reason to be overly bearish corn at current levels. Seeing as how last week was unable to break 400 and today’s trade was unable to take out recent lows, a continuation of the sideways range is expected. One of the changes we need to make due to recent action is to expand the expected range. Drops in the dollar with an added Chinese buying rumor can lead to a run back close to 400 and at the same time there is no need to get overly bearish unless 367 is taken out...Ryan Ettner
Soybeans: A heavy tone across all commodities on Monday as more bad news and declining confidence in the euro hit the headlines. One article talked about a complete dissolving of the currency. That might be sensationalized in our opinion but one thing is for sure, the euro is in trouble and as long as it is, the dollar will remain firm and commodities will struggle.
Futures opened lower, and a constant flow of selling took our support at 948. This triggered another round of fund and spec selling, causing prices to test support at 939. Our objectives remain below the market with 929 and 914 in our near term sites and long term (this fall) closer to 800 than 900. Going home tonight, the market is oversold after falling 35 cents in the last 3 days. Thus, a turn around Tuesday might offer another opportunity to sell a bounce.
Bean planting pace came in at 38% vs. 30% last week and 35% normal. Traders expected 42% done on average and thus any further poor weather should be viewed as supportive. With U.S. stocks expected to increase ~90% this year and world stocks hitting a record, we will view these rallies as a chance to sell…Bill Biedermann
Wheat: Funds sold an estimated 2,000 contracts of wheat and estimated to have entered the week short 25,100 contracts. Commercial interest is short 150,000 contracts, a weak level last experienced on May 13, 2008. Index funds during the same period of time have increased longs by 23%. But it is the managed money, which was long 21,000 contracts in May of 2008, which are now short 15,000 contracts.
The bottom-line is we anticipate index funds to continue to build its longs but the other two sectors to take us into new price lows when utilizing the July CBOT futures. The only item which would change our mind is if something were to stop 2010 corn production. The trade is of the opinion that short covering rallies in wheat are to be sold. The trade was anticipating 75% of the spring wheat was planted vs 67% a week earlier. USDA’s NASS estimated spring wheat plantings to be 79% planted vs 49% a year ago and 80% for a five year average. The trade was anticipating winter wheat good to excellent ratings to be steady to slightly lower. USDA’s NASS estimated winter wheat good to excellent ratings to be 66% vs 66% a week earlier and 48% a year earlier. Fundamentally, wheat futures and options are weak…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.