Corn: Friday’s rally on record volume and huge 33,000 contract jump in open interest (new people getting into the market at these prices) is still the main talk on the floor. Yield losses and the 158.8 private yield estimates remain the main reason for the rally. Many combines started up on Tuesday, and based on the yield reports we heard, 50% of yields are below expectations while the balance are at or above expectations. Statistically, this would be consistent with expecting a lower yield from the U.S. Department of Agriculture (USDA).
Based on the new crop condition report, our yield model suggests 163.9 compared with 164.6 last week. Based on the USDA’s normal downward revisions on this report, yield should come in at 162.7. Based on Allendale’s survey results, we would estimate 162.3. Crop conditions came in -1% at 69% good to excellent, which now puts it the same as last year’s crop.
The trend of the market remains very strong. Even though the Elliott wave 465 objective has been reached, there is no indication that the market is nearing a top yet. However, it is logical to think that new bullish news will be needed to keep the trend up after the USDA’s report is released.
Things we see in the news to watch: The EPA revision to blend rates; the Congressional decision on the credit paid to ethanol blenders; the 4Q economic health of the economy; bank strength in Europe and in the US; and how much more Obama stimulus will be implemented. Seasonally, futures have a tendency to decline into harvest…Bill Biedermann
Soybeans: There was quite a change in opinion where the beans would go early Tuesday morning. Overnight trade was looking for a setback to correct some of what was bought on Friday. Later on in the morning, there was a sale of 90,500 tonnes of bean oil. That put a positive spin on the bean complex as a whole.
To show just how large that sale was, our total sales for August came in at 47,600. That means we made over an entire month’s sales in one night. That was enough news to push the November contract past resistance of 1049. Shortly after that, resistance was taken out; we did indeed find fund buy stops.
This market does not seem to doubt the bean yields as they do in corn. That means if the funds do not come back with additional buying soon, this market stands a good chance at a small correction before Friday. What we should keep a watch on is if beans choose to test next resistance of 1060-1/4. That resistance is quite important because it is the last major level this contract has run up to since 2008. Passing that level to the high side would make finding additional resistance difficult.
As first thought, the only group that would be willing to take out such a resistance just ahead of a major report would be the funds. On Tuesday, the funds spent most of the day on the sidelines as you would expect with an aggressive dollar bounce. It is too early to tell if this dollar is on a good one-day bounce or if overseas markets will be a lasting concern once again. If the dollar does turn bullish, we will need to know right away as it is a first sign of when the trading funds may turn to sellers. For now the trend is higher, and we will not choose to fight that trend. Yield that will be watched for on Friday is the analyst’s estimate of 43.7 vs. the USDA’s 44.0 in August…Ryan Ettner
Wheat: During the trading day the Kremlin issued a clarification. Over the weekend, President Dmitry Medvedev indicated Russia may end its ban on grain exports before the end of the year. This contradicted Putin’s claims made Friday. The Kremlin, later Tuesday, indicated there would be no change in the grain export ban until the end of the 2011 harvest. We know who wears the pants around there. The other piece of Russian news, of stock levels being adjusted from 26 to 27.1 million tonnes, did not change.
In other news, we see Bloomberg newswire is the first to put out average guesses for Friday’s report. The trade believes wheat ending stocks for 2010-11 will fall to 898 million bushels from the USDA’s 952 level posted in August. Allendale agrees with this claim with our 913 million bushel estimate…Rich Nelson
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.