Corn: An improving weather scenario and a large speculatively-owned market left the prices vulnerable to decline on Monday. Funds, as of Friday afternoon, were long 193,000 contracts. That is within 30,000 contracts of a typical capacity position. Monitoring fund activity this week will be key as an exiting of these positions would press values quickly.
Yields are still the big debate. Even with good weather traders are questioning if the crop will make 163 bushel per acre (bpa). Current prices reflect ~160bpa. Allendale yield studies still suggest yields will meet or exceed 163 bpa.
Export inspections were good at 38.91 mil bu. Export sales on Thursday are expected to show more sales made to China and strong demand remains under the market for new crop. However, the old crop demand is highly volatile.
There are many areas in the central corn belt that have pulled all bids for nearby. There is a lot of inventory out there, a lot of poor quality corn that no one wants. The elevators need to wait for new crop supplies that should be near idea quality that they will use to blend inventory to useable grades…Bill Biedermann
Soybeans: Friday the weather forecast took out the high pressure ridge which was advertised for this week but traders were not selling on it quite yet. Because that forecast was flipping back and forth on dryness concerns, the trade waited until Monday morning to see what we would get. Sure enough, they left out the high-pressure ridge that was expected for this week and beans broke on the news. At noon, even more rain was put into the forecast, which kept beans on the defensive.
You will notice that beans did not drop proportionally to the corn drop. With long range forecasts still calling for a dry period in mid August, this market is far from throwing the towel in on yield concerns. Trade also had factored in a 1% decline on condition ratings all day which kept some support under beans.
While we are not feeling the need for beans to fall off quite yet we also want to mention that the recent high was a 62% retracement of the run lower. Only one grain market has been able to pass that retracement and that would be wheat. Even that market did not find much buying after passing that level. For this reason, we look at future bounces as a sell.
Should the funds come back in we will be active sellers of any spec buying bounce. A move back into the 980 area still looks to us as a selling opportunity. We simply cannot count on the August weather scare to come true. Since spring, that forecast has already been pushed back from late July to mid August. If it is pushed back one more time we will have this bean market set in a very bearish tone and that can happen at any time.
Monday morning the floor also estimated funds to be long 63,000 contracts which is starting to reach a large enough level where they are known to slow buying. Generally a position size of 100,000 in beans would be considered quite large. This now means that future buying days are sells with less concern that our sell orders will just be run over by more fund buying down the road. When they were long 8,000 contracts we were more cautious about selling. There is no other way to look at fund buying days than to give the green light to sales…Ryan Ettner
Wheat: Fundamentally, it is supportive the United States received 28.5% of Iraq’s complete purchase of 350,000 tonnes of wheat. Not supportive to U.S. wheat futures is how U.S. wheat was 161/bushel more expensive than Russia wheat. Despite the 2010 drought, Russia has not backed off of its grain export program. That is confusing as its difficult to maintain grain stocks usually it is the export demand which initially suffers the consequences.
According to a Reuter’s poll, the wheat price at the end of 2010 is using 559, up 3% vs year earlier levels even though domestic world stocks to use have increased by 1.5% vs year earlier estimates. Present world stocks to use are 23.4% vs the previous five year average of 19.98%.
We remain convinced corn prices are subject to more of a starch sell-off than the wheat. Spring wheat conditions came in at 87% good to excellent vs 91% for a five year ave…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.