Corn: Early thoughts on Monday were lower on the opening with this week’s weather. The outlook is ideal. Helping to keep prices supported was a large new crop 152,000 tonne sale to unknown (maybe China) and confirmation that a “ridge” was moving into the corn belt in the 10-16 day period. However, fund buying was not there today and futures struggled despite the forecast. Futures once again tried to penetrate 400 and failed.
The stochastics are at 92% and with conditions that overbought, the market is vulnerable. Major support now exists at 375. A close above 400 projects a swing to 415.
Fundamentally, the 400 price area is reflecting a 163.4 bushel yield (bpa). Adverse weather and a reduction to 161 would justify a move to 415. A yield below 160 would justify a much higher move. Rich’s yield model will be updated on Tuesday to reflect Monday's crop conditions. If yield potential is greater than 164, then prices are vulnerable.
One thing noted at Monday's broker meeting was that USDA’s May to July drop in new crop ending stocks, totaling 445 million bushels, is the largest May to July decline since 1993. In that year, prices rallied 16% into the second week of July and then sold off until pre-harvest. This year we have had a 16% rally and it is the second week of July 12. Seasonally the life of a rally is limited.
Traders need to be cautious. We will buy on a good dip but will also sell against resistance. Producers should be getting to 100% sold via options and box structures. These can be put on for as little as 15 cents and protect you from the current market on down while leaving the upside open until 440-460 (depending on how the numbers work out for your farm). We are more than willing to discuss these positions with you so feel free to call…Bill Biedermann
Soybeans: Monday saw some volatile trade as there were both positive and negative influences seen. On the bullish side, the market looked at the extended forecast and saw a high-pressure ridge that was placed over most of the Midwest. That forecast is still in the 10-16 day range but still has potential to catch some attention, especially for the bean market heading into the end of July.
On the bearish side, the dollar was trading higher for the second straight day, easing some concern that it would break the 100-day moving average and thus keeping the funds on the sidelines today. With speculative trading funds estimated to be long 42,500 contracts, it shows they have been a major supporter of this market recently. It was not more than two weeks ago that they were reported to be nearly flat. In the end, most of the support came from a squeeze being put on the old crop beans.
As the July trades its final two and a half days, it is getting into crunch time for those who need in or out. This often spikes the volatility leading to a 15 cent spike when most other months attempted to stay even.
When looking back at seasonal trades in beans, you can notice that during this time when July is on a spike higher it is also often a desirable time to hedge as well. Most years the November beans are known to start falling off when this old-crop bean market moves past the July expiration. If you are looking for a time to place a hedge then it would be strongly recommended to do so on any spike during the next two days…Ryan Ettner
Wheat: 532 is key support with resistance of 550 per bushel for CBOT SRW wheat futures. A much bigger picture is talked about for the CBOT Sept SRW wheat futures of 550 down to 500 by the funds.
Allendale is keenly aware the first quarter usage is the strongest with the subsequent quarters each smaller and we do not anticipate any change. The three-year average for first quarter use has been 909 million bushel with year ago first quarter at 779 million bushel (Jun-Aug). A fresh supply has convinced importers of US wheat as well as domestic end users to be proactive this first quarter.
Producers, you may want to be a seller of cash wheat near 550. If you do not need the cash, be aware the futures spread explains storage is still your best alternative at least until we hit our first seasonal peak in the month of October. Storage can only be captured by selling the deferred futures. Doing nothing and holding un-hedged cash in the bin does not put carry money in your pocket…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