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A corn market rebound will occur
Although this week lacked some of the stomach-churning swoons of earlier this month, it still featured plenty of liquidation pressure that drove Dec corn 13.5 cents down on the week and Aug soybeans 29 cents lower on the week. November beans managed to squeak a 6.5 cents gain, while Dec wheat gained 22.75 cents on the week, but mainly due to short covering rather than fresh buying.
A bearish mood still overhangs this arena generally, as large planted acreage, patchy demand, and fairly friendly growing weather still dominate sentiment.
The main feature this week was a continued unwinding of old crop soybean tightness. Old crop/new crop bean spreads were highly active throughout the week as commercials and speculators jostled positions amid an uncertain environment. Reports of imminent Chinese stockpile selling weighed heavily on nearby soybeans midweek, while fairly friendly growing weather limited the upside for November beans. We anticipate more liveliness in these spreads going forward as we transition from old crop to new crop, but overall expect the upside of the soybean market to remain limited while weather outlooks remain non-threatening.
Of course, August remains the key growing period for the beans, and it is more than likely that we will see hot spells emerge during that month. Such heat will naturally lead to concerns about the state of the new crop, but producers must be prepared to use such periods of price strength as opportunities to top up soybean sales and hedges if they are undersold at this juncture. End user demand remains very delicate, and we expect the Chinese government to continue offloading domestic inventories during rallies in order to fend off domestic food price inflation. So, rallies are not likely to be sustainable and therefore must be taken advantage of whenever they occur.
Dec meal prices followed the same path as new crop beans, but still closed at their lowest level since April on a weekly chart to extend the recent theme of long liquidation. End user demand remains meek at best, so additional downward probes look more likely than not in the days and weeks ahead.
December corn scored a 6¼ cent gain on the day on the back of short covering, but still closed more than 13 cents lower on the week at its lowest level on a weekly chart since early December of 2006.
Dec prices are now more than 30% off their early June highs, and may well continue to grind lower as the national crop develops amid broadly favorable growing conditions. We appreciate that most corn end-users have returned to profitability now thanks to the aggressive corn price slide, but also know that it takes several months of low input prices for sustained interest to resurface following the heavy battering consumers took while corn prices scaled above $4.50 last month.
We had warned repeatedly during the March-June rally that demand levels did not justify strengthening corn prices, and indeed that demand conditions would deteriorate in such an environment. And so it has proved, and now we must wait for demand to recover before we can expect corn to be able to string together an upward push back towards the $4 area in the new crop.
That said, following the heavy tumble we've seen since mid-June, we must allow for a rebound at some point that could easily push Dec prices back towards or even above $3.60 a bushel.
A couple of 'hot and dry' weather forecasts could be the catalyst for such a turnaround, but just as in soybeans, corn producers must be prepared to pull the trigger on sales during such rallies as delicate end-user demand will not accommodate another aggressive rally so soon after the June peak.
CBOT Dec wheat finally put in a solid performance this week following 5 weeks of nearly relentless capitulation. However, because the buying interest seen looked more like short covering than fresh buying, we are still worried about this market's prospects in the weeks ahead.
Demand remains scant amid plentiful global supplies, so another steep downturn can't be ruled out once the current spate of regrouping is complete.
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Gavin Maguire is director of E Hedger, a commodity trading and marketing firm based in Chicago.