Sunday Night Grain Outlook
By Duane Lowry
Sunday, July 15, 2012
OPENING CALL: Corn= higher/suspect; Wheat= higher/suspect; Soybeans= higher/suspect.
Weather provided scattered hit & miss shower activity during the weekend. Coverage was probably 60-75%, so certainly good. Amounts were also better than expected, widely variable, but some in excess of 1-2 inch totals. That said, most amounts were less than 3/4 of an inch and you probably have to use 1/4 inch at the bottom side to generate coverage greater than 50%. If you happened to be fortunate, it was a big rain event. If you missed that, chances are you don't have much hope for this week. Rainfall during the weekend was better than expected, I do believe. So, it is not unreasonable that some will be concerned we could experience price weakness and that is not an unreasonable conclusion. The NWS 6-15 day forecasts are for above temps and below precip. A few areas will have stabilized yield potential for a while. Nationally however, we may still be in a yield declining situation. For that reason, weather probably is deserving of a bullish spin. HOWEVER, the important key here is that we are slowly reducing the inflammatory nature of the outlook and it is possible that today's forecast is not enough to build much upside follow-through momentum to the recent gains. From that perspective, be careful embracing bullish spins to weather tonight/tomorrow/early this week.
Wheat is completely tied to corn. It can't have any meaningful/sustainable independent strength against corn. Wheat will need to be priced in a manner to maximize wheat feeding and displacing US corn exports and domestic US corn consumption. Wheat should struggle and resist price strength probes above last week's highs. Downside risk is greater than corn has, which is maybe 40-60 cents short-term. IF corn were to experience such a setback, it would probable still seek to eventually probe above last week's highs. But as time goes by, wheat will lose to corn. So, short-term strength in wheat should be greatly doubted/questioned. But if corn ultimately still has higher levels to attain, wheat may be spending some time in wide trading ranges "up here". With up here defined as something not too much, if any, above last week's highs. As discussed in the weather comments above, this week's corn price direction is not certain. However, I am suspicious corn has a chance to experience some liquidation pressures on ideas we are losing upward momentum and better than expected rains may be enough to spook some selling. Thus, early strength in wheat tonight should be viewed with great skepticism. I wonder if wheat isn't ready for a notable and swift selloff?
Corn will find mixed trader weather assessments. Some will express price concerns because of better than expected weekend rain coverage. Others will point to still stressful periods ahead and that we have not yet stabilized national yield potential. Technical conditions warn of weakness and questions sustainability of short-term strength, but nobody cares. Key support and buying interest will build on any test/probe of last week's lows. Such a development is not an unreasonable possibility. Longer-term resistance will be found in the $7.80-$8.10 zone. In between these two key areas could produce erratic and unimportant price action. Traders expect crop ratings to decline in Monday afternoon reports, but I would caution that we have had scattered light rains and cooler temps much of last week. Thus, it is possible the crop ratings decline may not be that much and they may quickly be seen as bottoming out. If true, that can result in waning upside price enthusiasm. Bulls have reasons to be cautious here.
Soybeans will most likely find traders calling the market higher. However, I would caution that last week's cooler temps and the plants ability to hang on and wait for rain may not have led to much crop deterioration during the past week, especially with the scattered precip, albeit light. That said, everyone knows/perceives that we can't afford to lose any production potential because of a tight balance sheet outlook even before the growing season. So, the real question here is whether or not we have enough "new" bullish storylines/energy to build upon last week's gains. I believe there is doubt about that. Technical conditions warn of short-term corrective weakness potential. Key support will develop in the $14.60-80 zone, but that is 70-90 cents under current values. If prices falter early this week, that may be the downside target zone. The next 60 days or more will still face weather and production concerns, as well as concerns about it being difficult to ration global demand. Short-term conditions warn of downside risk, but even if that occurs, it doesn't rule out potential for probing above last week's highs and possibly notable upside probing.
In summary, there are legitimate mixed spins that have merit tonight. I don't believe we have stabilized national yield potential and therefore short-term liquidation probes will produce buying opportunities. However, recent scattered moisture events may be lowering enthusiasm for new long position building at current price levels. Short-term technical conditions warn that early week strength attempts can falter. Pay attention to longer-term support levels and don't be surprised if we can test those levels on liquidation events. Yet, the next few/several weeks will also still have more fears of overall small production and can produce higher upside probes as well. Expect choppy wide-swinging trading activity during the next several weeks. If you can only buy the market, then try to be patient and wait for a better risk/reward entry level.
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