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Bulls and bears set to dance

After watching a Dr. Jekyll/Mr. Hyde nature of the grain markets last week, with the soybean market rallying to above the 2011 highs of $14.50 on the SAM crop problems. That opened up the possibility of running all the way to the 2008 highs of $16.50.  

Thus, Dr. Jekyll, the bull side of the market.  

However, the Mr. Hyde portion of the market, the bearish side, was that early planting of the 2012 crop in nearly ideal soil moisture conditions across much of the Corn Belt.  After all, 71% of the corn is planted vs. only 47% average, and 24% of soybeans are planted vs. only 11% average.  The HRS wheat is well ahead of average planting at 84% planted vs. only 49% average, and winter wheat is highly rated and on the verge of a record shattering winter wheat yield.  In fact, the Pro Ag yield model is now suggesting a national average yield above 49 bu/acre, shattering the old record by more than 1 bu/acre!  

Well, so far this week, the Mr. Hyde portion of the grain market has come out on top, with prices dropping significantly into the USDA report day Thursday morning.  Apparently, the "Mr. Hyde" portion of the market is winning, as prices for soybeans are back below the 2011 highs, which now goes back to 'resistance' levels on charts and will become difficult for the market to rally back above.  

In fact, many commodities are suffering from emerging downtrends, with the gold now below $1600, silver faltering and pushing lower, the crude oil suffering significant downside reversals last week, and following through with sharp losses again this week.  In fact, most commodities are in downtrends EXCEPT grains, prior to this week.  Is it just a matter of time before the grains fall prey as well?

The soybean rally on the SAM crop problem was indeed significant, rallying $4, before faltering this week.  Of course, there is a major crop problem in Brazil and Argentina, and it's likely the USDA report Thursday will reflect continued reductions in the crop by dropping Argentine production even further.  The report may contain other surprises as well, with world stocks of grains likely to be reduced due to the SAM crop problem.  

But again, the winter wheat crop estimate in the US will likely be hiked, and corn yields might be pushed 2 bu/acre above 'trend' yields of 164 bu/acre, thus reflecting the fact that early planted corn typically yields better (especially when planted into ideal moisture conditions).

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The USDA report this morning (Thursday, 5/10) was mixed with news, with bullish news for wheat and soybean carryout and bearish news for corn carryout.  Wheat carryout was 13mb smaller old crop (+4c?), and 70 mb smaller new crop (+25c???).  But wheat production numbers were higher than expected as winter wheat yields were larger than expected (as Pro Ag predicted below).  Also surprising was USDA's hike of Brazil corn production 5 mmt to 67mmt, based on heavy acreage increases of winter corn.  They did cut Argentine soy production as expected, but only 2.5 mmb to 42.5 mmt.  They also cut Brazil 1 mmt surprisingly.  Corn carryout was larger at +93 mb from expectations in this report (-4c??), and 180 mb larger for 2012 carryout (-8c???) as they raised corn yields 2 bu/acre to 166 bu, above 'trend' of 164 bu.  Total corn carryout is projected near 2 billion at 1.881 billion (bearish).  Basically, what is happening is we are feeding wheat (lower carryout) as a substitute for corn (higher carryout) since wheat is trading at a discount to cash corn.  

Regardless, we now turn attention to the US acreage mix, and we know that the market has attracted more acres of soybeans than those listed above at less than 74 million (Pro Ag thinks 3 more million acres will show up in the final analysis).  Have we also gained HRS wheat acres, and what about corn acreage? With perfect planting conditions, a maximum of acreage might be planted in 2012.   

Perhaps prices will see a brief bounce on the report (with soybeans likely to be the most friendly).  But can "Dr. Jekyll" and the bulls hold the day?  Or will Mr. Hyde and the selling from market bears affected by the ideal US planting season win the day?  Stay tuned, as the bulls and bears play out yet another dance at the CBOT.  

The information contained, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable. The opinions and recommendations contained are based on our judgment and do not guarantee that profits will be achieved or that losses will not be incurred. Recommendations should not be construed as an offer to buy or sell commodities. There is substantial risk of loss in trading futures and options on futures.

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