Sunday Night Grain Outlook
By Duane Lowry
Sunday, June 10, 2012
OPENING CALL: Corn= higher/limited precip forecasts; Wheat= higher/row-crop weather; Soybeans= higher/weather concerns.
Weather provides a moisture event moving across parts of the Midwest during the next few days, but precip totals in too many areas will be too light and some acres will be missed entirely. The overall theme of the two-week outlook suggests dryness concerns will continue and crop stress will expand, both in scope and intensity. There are opportunities for precip during both the 6-10 and 11-15 day windows, but the recent pattern has been to forecast more precip than actually occurs. I suppose some will want to label weather as bearish, but I think that is crazy. Whatever improvement there is in today's forecast occurs in areas that are not the main focus of concern. The only argument about weather should be how bullish is it and how long will its bullish bias last. We have already had too many weeks with too little precip and crops are beginning to suffer. The current forecasts will leave too many acres to face declining crop condition scenarios. Approximately 20% of China's corn/soy production will continue to be under stress from dryness during much of the next two weeks.
News> China's Jan-May soybean imports were up 20% from last year. China's total of all imports during May were up 12.7%, vs expectations of up 3.0%. Spain's bailout package (up to $125 bil and announced Saturday) for banks is designed to be a clear signal to markets and the public that the Euro area is ready to take decisive action. The amount of the rescue fund, if all is tapped, amounts to 21,000 euro of new debt for each person in the nation of 47 mil, where the average annual salary for those with work is about the same amount and the unemployment rate for those under age 25 is 52%.
Wheat is not the trade's primary focus and it will not be an upside leader. However, row-crop US weather concerns are significant enough to prevent wheat from even considering any independent weakness agenda. Wheat/corn spreads also probably don't offer inter-market spread traders much incentive to sell wheat. During the last three weeks wheat declined 90 cents and is more than 70 cents off that peak at Friday's close. Short-term technical conditions are well poised for corrective strength. This market has plenty of room to rally from current levels, even if the longer-term outlook is more depressing for values. Expect firmness from a follower position this week.
Corn may find mixed/uncertain trader sentiment, with some moisture expected in each 5-day segment of the 15-day forecast. However, precip totals appear likely to be relatively light and the recent pattern has definitely been for forecasted precip events to disappoint. I see too many acres with too little precip during the next two weeks, especially when considering the poor percent-of-normal precip patterns that have developed during the past month or more. Short-term technical conditions will encourage buying to surface on minor intra-day setbacks. Fundamental-focused traders will be elevating their concern levels, as many crops are beginning to show stress. Weekly crop ratings are likely to decline Monday afternoon and we seem to have forecasts that could threaten crop ratings during at least the next two weeks. I think we are poised for more aggressive upside energy this week. .
Soybeans will start higher on concerning weather themes. Possibly some additional upside energy will come from outside market reactions to Spain bank rescue plans. Short-term technical conditions will encourage buying interest to surface on small intra-day setbacks. This market likely has its sights on pushing through the spring highs if the current weather concerns can linger for at least two weeks, which seems most likely at this time. We should see more embrace of crop concerns this week and thus more enthusiastic buying energy unfold.
In summary, expect price strength on weather concerns. Many will want to attempt to pooh-pooh concerns due to precip opportunities in the forecast, but the pattern has been for these forecasted events to underperform by the time they actually arrive. Some will also want to question how much buying will surface in front of Tuesday's USDA monthly S&D data. Well, I don't think there is anything important enough in that report to trump weather concerns on the 10th of June. So, I see much more potential for expanding upside energy unfolding during the next two weeks.
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.