Grains: Now through harvest

With the June 30 release of the USDA's Acreage Report we now know what the farmers are managing in the fields here in the United States. In summary: Corn is up 5% from 2010, beans are down 3%, all wheat planted is up 5% and all cotton planted is up 25%.

Looking at June pricing, we saw corn open Monday June 6 at 731 and close Friday July 1 at 606.00 Beans opened June 6 at 1403½ and closed July 1 at 1309½. Finally, Chicago wheat opened June 6 at 819 and closed July 1 at 612¼. Nice if you were short like we.

So now what? We now need to deal with Mother Nature, reports like crop progress and WASDE, big money movement (COT) and last but not least our friends in the media.

To start, Mother Nature will be lending her hand with regards to how the U.S. harvest will look. Not even the Swap Dealers (biggest banks) have the ability to control the weather. At least I don’t think they do. A very long time customer of mine happens to be a farmer in northwest Illinois. I had an opportunity to hear what he sees in his fields.

Locally, he says the crops are looking good with corn over his head and soon to tassel. Everything still looks green except for wheat and oats as they are ripe and ready for harvest. But, he said “under the surface there are things going wrong. Some of them are big.”

Soybeans haven’t grown a bit for the last 10 days or so. Short beans are hard to harvest. That shouldn’t happen in July. The ground has a lot of cracks in it and is hard as pavement. We are running out of water. There have not been any decent rains since June 22 when it rained .11 inch. The last good rain he had was June 15 when he saw .51 inch. There have been a few isolated showers over the last two weeks, but most have not amounted to much. Corn needs rain as pollination begins very shortly. Yields will be cut if there is little or no rainfall when the tassels and corn silks emerge.

The temperatures have turned hotter with daily high temperatures now running into the upper 80s and low 90s. This is too hot when the water levels are running low. Finally, there hasn’t been much wind as of late, but there was some at the end of June and the beginning of July. We expect to see the wind pick up strongly by July 27-28. If rain is short, this will make the problem worse. This again is northwestern Illinois. I am sure you have heard about Texas and their extreme dryness and heat. So weather could help or be a problem for yields in the coming months.

Reports coming out of the USDA will be closely watched. Crop progress released each Monday at 4:00 p.m. eastern time is important as well as the coming WASDE report tomorrow at 8:30 a.m. eastern time (see the charts below to see how the July WASDE has affected grains over the past 5 years).

Proceed to Page 2 for the latest COT Data...

COT Data

Also we will need to see how big money is moving through these markets. First analyzing the COT legacy report, we see that on Friday, June 3, Commercials were net-short corn -395,045 and by this past Friday, July 8, Commercials were -215,125 net-short. In beans we saw on June 3, Commercials were -100,113 contracts net-short and on July 8 they were -47,513 contracts net-short. With Wheat, on June 3 Commercials were net-long 3,103 contracts and on July 8 were net-long 55,729. As you know the charts below present the disaggregated report, which I find much more helpful and transparent. For detailed information on this report visit Trends in Futures.

And last but not least our friends in the media could lend a hand. This past Saturday the Wall Street Journal had a headline that said “China’s hunger for corn turns markets on ear.” The article said “a China buying spree for U.S. corn is putting on display the ability of Beijing to reshape grain markets as well as the cost of food globally.” Scary isn’t it? Take what you read with a grain of salt. Let the charts guide your actions. Read the charts below and I hope this helps you with trading grains over the next 8-10 weeks.

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...