CORN: Expect $4.30 to hold this week but rallies to find resistance ahead of the three-day weekend. Funds are long a record position of 433,000 (index funds) and 346,000 (trading funds). All economic data that has come in the last 12 days has been bearish the economy for Q4. Thus we would expect some investor “de-leveraging” of commodity positions as we move into Q4 and harvest. Harvest will be in full swing next week after the three-day weekend and with a weak tone to cash markets and 5.143 million bushel already in deliverable position, it would be logical to expect convergence going into the delivery process. Lastly, the latest rumor out of Washington suggests the EPA might expand the blend to 11-12.5% from 10% but Congress will not expand the amount of money or credits for ethanol and in fact many are starting to think they will reduce the credit. The opinion of everyone I talked to about this is that money rules how much will be blended regardless of what EPA says. Thus even though the market has a strong tone and technical objectives around $4.50-$4.60, we expect the fuel for this trend to run out of gas and for the seasonal tendency to decline into Q4 to take over.
We still feel the seasonal trade is to be selling but until the chart actually confirms the summer high, we are simply probing the market. Producers should be 75% hedged by now. Producers and end users should also start strategizing on how to retain ownership into the spring of 2011 using 0-3¢ three-way option ideas (obviously we do not want to do this today but when the seasonal low is typically put in, then these positions could be implemented.
SOYBEANS: For the last few days this bean market has struggled to keep up with the move higher in corn. It would eventually find a bounce late in the day. Today the struggle seemed tougher than ever. With corn trading as much as 7¢ higher, beans tested being in the red three different times before selling into the close. This market attempted to stay optimistic as 1 pm approached there still was no support to be found allowing selling to take over. Beans are still a market which has had a tough time moving high enough to be considered technically bullish. Exports have been on a very good pace lately but that does not translate into year long active buying. Going back over 10 years, the most recent four years that had active pre-harvest exports had two of them with good year end numbers and two without. In all, that means that current buying does not guarantee good numbers for the rest of the year.
As this market continues to be technically traded, we have to keep a close eye on tomorrow. It is the last trading day of the month and also a potential turnaround Tuesday. There are two reasons to find a tough day of selling tomorrow. On the same note, selling for those two reasons would not suggest a longer term move lower even if they are significant. We still have some time before hearing yield reports. First harvest reports will be expected from the Delta which is looking to pick up rain over the next couple days keeping those estimates on hold for now. Technically, this market still looks weak and fundamentally the best we have for yield estimates are guesses.
There is a chance at seeing this market stumble tomorrow during end of month fund selling. This would not be enough to suggest a turnaround in the recent move higher. Unless there is at least a two day break about to occur we will continue to expect this market to lag behind the other grains while moving higher this week
WHEAT: There are only minor bullish issues left for this wheat market. Expect these small news events to provide only short term support.
It was interesting to see today’s mix of slightly supportive news stories (Argentina and Australia weather concerns and Pakistan confirming it would not export this year) were not able to keep prices elevated. Though the trade is expecting USDA to tighten up the world and US numbers a little on next Thursday’s supply/demand report, it will still not affect things. World ending stocks will be larger than average. US ending stocks will still be clearly burdensome.
USDA stopped updating the ratings of the spring wheat crop as harvest is winding down. Last week’s 82% good to excellent rating was the best finish we have seen. The six states producing spring wheat were estimated to be 69% harvested compared with the 75% five year average. We will note #1 producer North Dakota has run through 74% of its acreage. For most purposes, there are no yield threats left.
Bill Biedermann is Sr. Vice President at Allendale. Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Rich Nelson is Director of Research at Allendale. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.