by Duane Lowry
Monday, July 23, 2012
SUNRISE OUTLOOK OVERVIEW:
*At 7:02 am> Grain/Soy Snapshots: Corn= 20 1/4 lower, Wheat= 31 1/2 lower, Soybeans= 40 lower.
Day Session Expectations vs Night Session Tone:
Dec Corn: Support= $7.55, Resistance= $7.85-90
*A correction event will unfold. Intra-day recovery attempts today/tonight should be searched for selling opportunities.
Nov Soybeans: Support= $16.20, Resistance= $16.75-80
*A significant correction event is due.
Sep Wheat: Support= $8.90, Resistance= $9.25-30
*A major top and significant downside risk exists from current levels.
Outside Market Influences:
At 6:59 am> Price Snapshots: Crude was down $2.85, Gold was down $12.70, Dow Index was down 151 and the US $ was up 31.
*Major price peaks have likely been established in stocks and crude. Expect selling interest to build on 1-2 day recovery attempts.
Weather offers a wetter theme for each segment of the two week outlook.
Wheat has established a major price peak. Recent strength included a complete cleansing of short positions, both flat-price and those used in inter-market spread trades. Wheat will lose to corn in the weeks/months ahead and likely be the weakest link at the CBOT. Thus, we won't be trading back to last week's highs any time soon, even if corn and soybeans manage to revisit/test/jab recent highs. Any minor intra-day recovery attempt today/tonight/tomorrow needs to be searched for longer-term selling opportunities.
Corn has begun a correction event which should be quite significant. The fundamental storyline is fully mature. The emotional hype is fully mature. Shorts have been fully chased to the sidelines. Technical conditions are ripe for a significant price setback. Markets have a way of discounting major fundamental developments long before the actual final production figure is determined or even before we reach a point where confidence about a particular number or narrow range of production has been achieved. For those producers/acres directly impacted by the most severe conditions, it is understandable to cast a pessimistic view to national production, but history warns that we have a tendency to ratchet national production ideas too low. So, be very careful placing too much confidence in anyone's dire predictions. That being said, we know that we must ration a huge amount of demand, with 1 bil bushels not an unreasonable amount to consider. Prices have gone from basically $5 to $8. User expectations have fully embraced the fear of high prices and the concept that high prices will remain throughout the marketing season. There are no illusions that this will be a short-lived problem for users of corn. Consequently, everyone has an opportunity to make plans (reduce demand). The domestic livestock producer will face devastating increases in production costs. Global importers are fully engaged in finding alternatives to US corn. Not only does the current price have an influence on demand, but perceptions of how long prices will remain high and how confident users are that these extreme prices will occur/remain also influences demand decisions. On all these levels, we are already maximizing demand destruction plans. So, don't think there is some magical price that must occur before demand destruction has accomplished its tasks. We have already accomplished it. Corn demand will be just as hurt by $7 as it will by $9. The ethanol industry has major profitability/viability problems ahead during this next marketing season. And, it remains very possible that some stroke of the pen could quickly and decisively shift the demand reduction responsibilities more to the ethanol industry and away from the livestock industry. Allow some time for a liquidation period to unfold before searching for a reasonable buying opportunity.
Soybeans have begun a correction event that will develop into a notable liquidation phase. Key support is at least $1.25 below last week's high, possibly closer to $2 off that area. Technical conditions are ripe for a correction. Fundamental conditions will find traders pondering again the historical ability of the soybean plant to hang on and wait for moisture. With the always key production period of late-July/Aug just ahead, there will be an attempt to add-back production potential from recent apocalyptic rhetoric. This process will threaten to liquidate longs established during the past two weeks. Yet, the US balance sheet will be tight and will require some global demand to switch away from US shores. This will create more reasonable buying opportunities when liquidation processes have run their course and better support levels have been achieved.
In summary, many traders are shocked at the scope of last night's declines and they assume prices will quickly recover. We may seem some intra-day recovery attempts today/tonight, as traders react to weekly crop ratings expectations/results, but technical conditions and fears of a broader longer-lasting correction event will cause selling interest to build above the market.
Barge Values: July= +75 U
CZ: Support= 6.90-7.15, Resistance= 7.80-90
**PROFILE: Dec Corn> Reversal-down action from major resistance. A major correction/liquidation period is ahead.
Barge Values: July= +110 Q
SX: Support= 15.75-16.00, Resistance= 16.65-80
SMZ: Support= 420-40, Resistance= 495
BOZ: Support= 52.00, Resistance= 55.00
**PROFILE: Nov Soybeans> IN SUMMARY, poised for a significant correction phase.
Barge SRW Values: July= +10 U
WU: Support= 7.75-8.25, Resistance= 9.15-25
**PROFILE: Chicago September Wheat> A major long-lasting price peak has been established. Any intra-day recovery attempts today/tomorrow needs to be searched for selling opportunities. Wheat will lose to corn in the weeks/months ahead.
GLOBAL HIGHLIGHTS & HEADLINES:.
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.