Corn: Overall, the corn had another slightly lower day with old crop accelerating past all other contracts. We have seen the July/December corn spread narrow violently in the last week, which continued again on Tuesday.
Weather saw good totals for rains over the three-day weekend for areas to the north including North Dakota, South Dakota and Minnesota. Many other areas missed out on the rain but are included on a wider sweeping system though this week. In the five-day forecast there are 0.5-inch to 1.5-inch rains expected across a large coverage area that would best be described as the Midwest. Following that rain, there is another one expected for early next week. While weekend rains might have been considered disappointing, it is the forecast that kept pressure on prices across the board.
Moving back to talking old crop corn, we saw the July/December spread break the last large support level of 46-3/4. For old-crop traders who want to trade weather concerns, they might want to consider looking at new crop instead. Even though July calls are the popular choice for weather trades, it might not be the best course of action this summer. December could be the way to go to trade weather. It is tough enough to trade weather and will be only tougher to trade weather and spreads as the July contract is doing right now.
Both the dollar and wheat were outside influences that also affected corn on Tuesday, and we look for that to continue. Wheat yields will offer corn influence short term, and the dollar will continue to influence corn each day it is higher. Looking forward, each dollar move higher, even if it is small, will be significant as it means breaking over 20-month highs…Ryan Ettner
Soybeans: Beans finished the day higher on Tuesday after failing to hold above $14 for the July contract and failing to hold above $13 for the November contract. We failed to see any additional sales announcements Tuesday morning, but this is not surprising as the Chinese have booked a little over 17 million tonnes of U.S. beans over the past four months, with some stipulating they may have an additional 5-7 million tonnes for May. This could take some of the wind out of the bull’s sails short term, as we may not see the export business we have been seeing in recent months.
What we can see as a bullish story is two separate firms have put out estimates for Argentina’s bean crop below the 40 million tonnes number. The USDA should revise Argentine production lower at least one more time this year. Oilseed crushers in Argentina will be striking over wages on Wednesday. We are not anticipating any major disruptions from this activity, or a large price reaction, but these are the events we see moving into summer.
The dollar kept pressure on commodities Tuesday after moving off its early morning lows, taking out Friday’s highs. The Reuters CRB index has also been in a downtrend since the second quarter of 2011. If we continue to see the general commodity liquidation the beans would not be immune to the general commodity sell off…Cordon Sroka
Next page: What's up with wheat
Wheat: The wheat market started the holiday-shortened week on a negative note as it was under pressure the whole session. Some will point to a better weather situation as the reason for Tuesday’s selloff. I would attribute it more to the lack of buying by the funds.
Friday’s Commitment of Traders report showed that funds had purchased 57,083 contracts through last Tuesday. This was about 25,000 more contracts bought than the trade had been expecting. With this massive buying spree, the funds went from carrying a near record short position to being slightly long. This buying spree propelled the futures market to rally a $1.30 in a five-day period.
Now that the funds have liquidated, the question the market bulls need to ask is, Who is there to push the market the next leg up? We would be surprised that the funds would build a long position into the heart of harvest unless the harvest results are disappointing. We would anticipate that last week’s high should cap the market at least until the northern hemisphere harvest is completed.
Weather was viewed negative Tuesday as rain fell in parts of the black Sea Region of Europe as well as Australia over the holiday weekend. Weekly crop rating released after the close showed that ratings dropped another 4% last week. This leave 54% of the crop rated good to excellent. This is still way above last year’s crop which was rated 33% good to excellent at the end of May. Harvest activity is picking up speed with 9% of the crop harvested. This is above the historical average of having only 1% of the crop harvested at by the end of May.
Early harvest reports from Allendale customers have yield coming in better than farm averages. The weekly crop inspections came in at 20.5 million bushels, down from last week’s 25.0 million bushels inspection number. Allendale looks for the wheat market to move into a sideways trading range. With the funds now liquidated out of shorts, this should limit short-covering rallies. Harvest activity should continue to pressure the market while dryness concerns should keep the wheat market somewhat supported….Jim McCormick