by Duane Lowry
Tuesday, April 17, 2012
Corn spreads continued to weaken and defy popular rhetoric, further verifying that we are involved in a liquidation process. Despite talk of possible Chinese business and tight US stocks, old/new futures spreads have lost nearly 30 cents since the first of the month. There is potential for more spread unwinding and this is a real threat on producer-held old-crop inventories. Trader sentiment was bullish this morning, but early strength quickly ran out of energy and old-crop months began to weaken. Again, just to maintain perspective in an environment that perceives corn has been strong for months and in an uptrend forever, July corn is at the bottom side of price parameters existing during the past 13 months, with less than a dozen days during that period where July futures settled lower than today. Keep in mind that this has been the result despite near-universal bullish attitudes throughout. And, we currently find speculators holding large long positions. So, if weather remains favorable for the next few weeks, and there is nothing in the forecast today that is threatening, then the pressure will continue to build on both speculative longs and producer old-crop inventories. New-crop months were supported by spread unwinding and bottom-picking mentality. At the close, July finished down 6 cents and Dec was up 3 1/2 cents. Overall technical conditions will cause selling interest to build above the market. Chart unraveling and trader discouragement will help fuel liquidation energy. We remain poised for price weakening themes during the next few/several weeks.
Soybeans established the day's highs during the first 20 minutes of trade, fading much of the balance of the session. At the close, July finished up 7 1/4 cents, with November up 5 1/2 cents and both 8-10 cents off the day's highs.
Wheat also peaked early, reaching double-digit gains, only to fade the balance of the session, settling down 1 cent. News is limited. Technical conditions and bearish fundamental backdrops will continue to find selling surface on small 1-2 day corrective bounce attempts. Potential buyers seem sidelined and may largely feel content to stay there until harvest. Overall conditions suggest a declining price trend theme can continue for several weeks.
In summary, there was little for meaningful news and unless you enjoy exercising your imagination and magnifying the importance of every news headline or talking point you find, that could remain the general theme for several weeks. The US weather/moisture outlook is too favorable to embrace bullish rhetoric. Besides, the trade is still holding too much speculative length and liquidation pressures will continue to limit sustainability of any short-term bounce attempts. While the trade has been forced to focus on more bearish storylines because of weakening price trends, declining equity and too good to ignore weather, there remains very little trader appetite to approach any of these markets from the short side. It is possible that if weather remains non-threatening through May, we will have a very thorough liquidation process and ultimately get the trade to build short positions. If true, we have much more selling pressures to absorb during the next several weeks. Downside potential continues to be more than popular rhetoric suggests. Days like today are pauses in a trending lower pattern, not possible/probable upside turnarounds. At the time of the grain close: Crude= up $1.39, Gold= up $2.30, Dow Index= up 208 and the US Dollar= down 9.
WEATHER: Midday forecasts were similar to this morning's discussion, offering a favorable mix of warmth, planting opportunities and moisture.
NEWS: The IMF lowered its estimate for China's 2012 GDP to 8.2%, down from 9% previously. The IMF says Spain may have erred too much on the side of austerity
Tuesday night's grain trade outlook: Technical conditions are not conducive to sustaining multi-day upside energy. Expect selling to surface near/just above today's finish and below today's highs, limiting any upside probing attempts. Overall conditions suggest 1-2 day corrective bounces should be searched for selling opportunities.
This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.