Daily Grain Report for July 11, 2011

Matthew Pierce, GrainAnalyst.com

Trends:



Calls: Friday saw a much better day than early morning expectations as corn and wheat shrugged off negative momentum from crude and currencies to show good gains once again. This is due in part to weather for both crops and technical buying coming into the markets ahead of the USDA report on Tuesday. The strength in wheat is due mostly to short covering in CHI with Minni and KC losing dramatically as those protein spreads are unwound. An interesting idea is developing in this scenario with many looking at a version of a flat price butterfly. Players are looking to buy 1 KWU, buy 1 MWU and sell 2 MWZ. This is interesting in that the KC harvest should end quickly offering an uptick to the KC versus new crop Minni which should not move this early with so much of the season available ahead of us. The MWU-MWZ should continue to work in a choppy wider manner as demand for 15% wheat remains stout. In the complex traders saw minor strength in beans with this left out of the recent fund buying spree. Beans are a bit less susceptible to pain this early in the season with their crunch time weeks off. Also remember that beans have not taken a beating relative to corn or wheat for that matter. Looking at the recovery in corn I must note that it closed Friday just 10-cents under the opening level on the June 30 report. I think this offers massive potential for a continued recovery in corn if the USDA does not prove, without question, where all this corn is and where all the extra acreage is. With the recent flurry of demand there are many questions as to the actual gains in old crop stocks. Add into this that Ethanol is running at the highest capacity in years and markets have a major question mark heading into the report tomorrow.

Technically corn is on a run. Friday the market failed to achieve the 100-day MA but this did not deter any fresh buying from coming in with all indicators now in a positive stance in the bottom end of the range. This was not supported by any gains in OI with corn losing 4,600 on the day. I have to attribute the gains to weak shorts getting flushed out. The shorts in wheat are running scared after indicators turned positive for the first time since May 31 offering plenty of upside in that wheat retains a short of 40,000 (-ish) with this again not supported by OI changes. Wheat saw a small gain with fresh longs entering. In Nov beans the market is rallying off the bottom end of the recent range with the move on Friday closing the market above the 50-day MA offering more upside if coupled to indicators sitting in a firmly positive stance. These are strictly technical comments, not overall opinions heading into the report.

During the weekend we saw temps in western growing regions exceed 100 degrees on both Sat and Sun offering more upside heading into the report with the ridge still evident though moderating. Why the trade is so focused on IA and IL when TX, LA, AR, MS and into KS are virtual disasters is confounding to me. Even if the ridge is real, which I continue to doubt, the real problems with the corn crop are in the far south and the far north. In the next couple weeks, the concept of Growing Degree Days will move back into focus after this was the main (albeit post harvest) reason for last year’s problems. Traders are already hearing about nitrogen leeching issues in IA, MO and S. IL making the current USDA yield estimates questionable, which is nothing new for the trade’s opinion concerning the USDA. Adding to the question marks concerning analysts and their numbers, Informa came out on Friday with their yields for corn at a whopping 162.5 bpa for corn with beans at 43.1 bpa. Both are below their June estimates but show just how wide the actual ideas are. I’ve heard some estimates in the low 150s and some in the low 160s but nothing this high…Informa is as believable and reliable as Tom Skilling’s midday weather forecast. I wish I was a weather man; it’s the only career I know of where there is zero accountability when you’re obviously wrong all the time.

The overnight session saw a mixed opening before world contraction again halted the advance in agriculture. Chinese growth is the negative today after crude import levels fell to the lowest level in 8 months and bean imports fell by 30% as compared with last year June. EU wheat values are off 2% as Russian offers continue to pressure the market for 11.5% pro wheat only. This is not a high protein wheat issue which is why I have to ask why Minny got so hammered overnight. The general feeling overnight was one where macro pressure curtailed the growing technical and fundamental momentum. Not a surprise following the solid upside move last week and the report tomorrow. Let’s all wait and see what the USDA has in store.
 
Heading into the day before WASDE the obvious feeling is lower. I am pretty much writing off July futures with these expiring on Friday and open interest across the board down to a minimal level. In Sep and deferreds there is no reason I see to buy today due to the world contraction talk with Chinese growth, Italian debt and the US debt ceiling negative factors. They started off the year with 10% growth expected with their estimates now falling into the middle 8s. Not a big deal in my eyes but sentiment is against all commodities today with cotton adding to the negative pressure moving limit lower so far in Dec. NG is the lone bright spot as spreads versus crude are exited while gold moves higher as faith in world currencies wavers ever so slightly. Look lower as markets consolidate recent gains with many sitting around until tomorrow. Funds have shaved their longs so much that I do not expect much more pressure than I saw overnight with many feeling a drop in crop ratings is due today in spite of the talk that corn is expected 1-2% higher. WASDE brings too many questions without answers to hold a bearish sentiment heading into the report.

Beans are called 7-9 Lower with no real spread bias seen. SX will trade back under the 100-day sitting at 1344 but indicators remain positive taming negative sentiment. Corn is called 7-9 Lower with a mild bias toward owning Sep over Dec. CU failed to fill the chart gap up to 648 making the bullish target for tomorrow if traders see old crop stocks numbers lower than expected. Indicators remain positive with plenty of room to the upside. Wheat is called 15-17 Lower in CHI with a minor bull spread bias while KC is called 18-20 Lower with no spread bias seen. Minny is called 20-22 Lower on profit taking with no spread bias seen. MWU is chopping at the bottom end of the range with indicators positive with plenty of room if and when fundamentals come into focus. Meal is called 2-3 dollars lower while bean oil is called 20-30 Lower looking to keep oilshare in line. 

News: Open Interest: Corn -4588; Beans -4306; Wheat +2676; Meal -1624; Bean oil +1201. Minimal changes overall with the COT showing a major shift in ownership as funds are exiting longs but commercials are joining the ownership side. This is a bullish factor for the market long term because commercials will not sell on any rally.

Palm oil stocks hit 18 month highs on weakening demand prospects. This is another reason for bean oil pressure and rapeseed pressure in spite of the growing problems in the northern reaches of the US and southern Canada.

EU wheat fell 1.41% overnight to 192.00 Euro per Tonne as Russian export values continue to plummet. The contract is not a direct compete due to Russian wheat only 11.5% but sentiment is against the market.


The 6-10 day continues to show a warm and dry pattern throughout the central and southern growing regions. KS, TX, NE, MO, AR and into LA are of greatest concern with areas of WI, MN and ND seeing continual rains offering bullish momentum there. The OH river valley is all the sudden dry with crops showing early signs of stress making the expectation for a higher crop rating questionable.  Rains expected in S. LA today and into tomorrow should help ease stress but they are contained to the farthest south growing regions with most of AR and N. LA missed. Heat and dry weather dominate IL, IA and IN into the end of this week following a severe storm today and into tonight. This will make the upcoming weekend forecast a major issue following WASDE.

July WASDE Carryout Estimates:

10-11

 

AVG Guess

 

Range

 

June WASDE

 

2009-10

Corn:

0.911

0.675-1.050

0.730

1.708

Soybeans:

0.193

0.160-0.220

0.180

0.151

11-12

 

 

 

 

Corn:

1.013

0.775-1.177

0.695

 

Soybeans:

0.172

0.140-0.197

0.190

 

Wheat:

0.716

0.669-0.761

0.687

 
  
 

July US Wheat Production:

 

AVG guess

Range

June WASDE

2010

All Wheat:

2.069

1.990-2.138

2.058

2.208

All Winter:

1.454

1.419-1.490

1.450

1.485

HRW:

0.776

0.752-0.797

0.777

1.018

SRW:

0.440

0.420-0.456

0.434

0.238

White Winter

0.238

0.227-0.245

0.240

0.229

Other Spring

0.548

0.455-0.590

N/A

0.616

Durum

0.068

0.060-0.095

N/A

0.107



***chart courtesy Gecko Software
Past performance is not indicative of future results.

Chart - Corn - Friday's achievement of the 100-day MA was short lived but indicators support a continued bullish bias. Tomorrow will set the tone for the rest of the week and the month so do not get heavily involved today before these import numbers. I still suggest a long term bullish bias, but that will not help today. The stance of the market is one for an explosion if weather agrees with bulls with many areas of the US questionable heading into the middle section of the growing season.

LATE SALES: 110 TMT US BEANS TO CHINA FOR 11/12.

MACROS: Are the major negative pull today with Chinese constriction, currencies, US debt, Italian debt and  cotton all adding to the downside momentum. Macros are in the driver’s seat today but not tomorrow.

Gold is trading 12.90 Higher sitting at 1554.90.  
Crude is trading 1.59 Lower sitting at 94.61 as of 8:30 CST.
The Euro is .0159 Lower sitting at 1.4056 versus the USD.     
The Yen is .07 Lower against the USD trading at 80.46.
Dec Cotton is trading 500 Lower on macro liquidation trading 108.88.   
Oct sugar is trading .35 Lower continuing the consolidating after the failure to get above 30-cents.
 
Daily Wisdom: Education's purpose is to replace an empty mind with an open one. - Malcolm Forbes

Best Regards
Matt Pierce

email:  support@grainanalyst.com
phone:  (800) 963-1561


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