Corn: As you will find in commentary for any of the grains, big news on Monday was China announcing they would allow more flexibility in its peg to the U.S. dollar. An initial reaction to that news will be bearish the U.S. dollar and bullish the Chinese currency. Economists generally believe the Chinese yuan is undervalued anywhere from 15% to 40%. That instantly translates to expectations of a large increase in exports to China, which was the reasoning behind corn's initial jump higher.
After the opening market jump, it was noticed by most markets that the overall effect of this news was not quite as large as earlier expected. In fact, the dollar moved slowly higher throughout the trading day for the same reason. That was reason enough to set corn back down to first support levels. Buying from Monday morning looked optimistic but did stop short of the 100-day moving average for both July and December. A break above that level, which for December is 387 3/4, would have been a positive bullish sign.
It is still possible to find fund buying this week to attempt a trade above that all important bullish level. On the setback, it can be noticed that both December and July held first support levels. While not breaking out to the upside, a further significant slide was prevented as well. In all, this means we may have bought more time this week for selling opportunities. We will want to target areas just under that 100-day MA in December. That means if we can place a sale around 385, we will want to be hedging.
What we need to remember for this week is that barring any major fund buying, this week still looks to be “do or die” time for this market. July has seen the end to many corn bounces on past charts, especially those years that start off looking as good as this year does. At the end of the month, the USDA will revise acres and shortly into July they will update yield outlook. Even a small increase in both puts carryout right back where we started before the latest supply/demand report.
Lastly, we want to mention that there is a good amount of talk in regards to August turning hot and dry. How we want to approach this is go ahead and get sold here. If this weather does turn bullish that late in the year we will address it when the time comes. That news is unlikely to be traded this week or next week. Sell now with a stop placed in case weather does turn bad. Do we believe August weather reports in June? If so are we really willing to risk selling opportunities on it? Let’s have forecasters get the five-day forecast right first before we base our hedge strategy on the two-month forecast…Ryan Ettner
Soybeans: Sharply higher open on Monday on concerns about the planting pace and crop deteriorating significantly, as well as talk of China buying beans and bean oil after their announcement to float their Yuan. For many reasons, the market was not able to hold onto gains and closed weak but not reversing lower. Beans have retraced 62% of the April-Jun selloff and came very close to the long term downtrend. Planting progress was neutral at 93% done versus 94 normal. Only MO (behind 5%) and OH (behind 13%) are a major concern. Hot weather forecast was cited by traders as bullish. We view the hotter weather coming over the next 10 days as favorable for soybean farmers. Beans planted like hot weather and we really need to get into the fields and finish this planting season. Crop ratings fell 4% to 69% good to excellent. This will be viewed as bullish and depicts some of the wet conditions that have plagued the Midwest…Bill Biedermann
Wheat: CBOT SRWW did not experience funds decreasing it one week short position by 74% as estimated last Friday but according to the Commitment of Traders Report by 28%. Farmers sell soft red winter wheat by quantity during its present harvest where as hard red wheat is sold by quality and quantity. Most reports suggest good harvest of quantity and quality of HRW in the Texas and Oklahoma region. Please take a look at our Export Demand page, as suggested last Friday, you will not find the US’s name on the big ticket sale items, and at harvest time, freight is still cheap. There were no surprises contained in the afternoon NASS crop progress report with the exception of harvest delays greater than expected in Kansas…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.