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Tim Hannagan: All eyes on a 'heat dome' forecast

Agriculture.com Staff Updated: 07/13/2010 @ 12:51pm

By Tim Hannagan

PFGBest.com Senior Analyst

07/13/2010 12:05pm

Following a week's vacation, I’m glad to be back with so much excitement building in the grain markets.

But, I put you on cruise control last week. My last report, before I left July 1, gave you everything you needed to know about the grain markets' movements from Friday, July 2 to Friday, July 9. I simply said no one will want to be short entering the July 4th week and speculators will buy 'long' on fear that the bullish June 30 crop report on acres planted and stocks on-hand was perceived so bullish that it told the trade the July 9 monthly U.S.D.A. crop report could be bullish as well.

This meant fear to 'shorts' who had to cover or buy out of short held positions while speculators buy. From my Thursday July 1st report to July 9th, we saw corn rally 40 cents, beans 60 cents and wheat 70 cents from the July 1st low to July 8th high of week. Those who bought my corn and bean Call option recommendations did well along with the futures players.

For those who took the quick profit into the report, fine, that’s your money management. Those who are holding onto the call options could get lucky as WXRISK.com see a heat dome moving in this weekend thru next week. If true, this will add further weather premium to the market.

Last week’s success came from knowing what trend following funds and index funds would be thinking prior the July 9th report. If you know what their thinking or fearing you know how they will trade. Either buying long out right or covering shorts like in wheat. The market trades fear before fact. So, though the July 9th crop report was bullish by lowering corn and bean ending stocks inventory, our money was made by trading the fear of the report the days prior its release back to July 1st.  Last week’s gone, so I’ve turn the page.

The next big report to position for is early next month leaving weather the primary pricing force. Corn is in the middle of its key yield time with beans entering prime yield time now with 8% setting the pod . We had our first report on demand come out Monday with our weekly export inspection numbers. Wheat saw 14.1 million bushels inspected for near term export down from 16.8 the week prior and four week average of 14.5. Weak demand. If wheat’s going to continue higher from here it will be a followers roll to corn. Wheat will need to maintain its flow into the feed ration, as quality feed corn is becoming more and more difficult to obtain due to storage of last year’s crop under too moist conditions creating quality problems now.

Corn inspections were 34.5 million bushels, about equal our strong four-week average of 33 m.b. Not much I can say other than we continue the biggest corn export year on record, as China and others expand feeding operations for their mandate for more protein via meat. Soybean inspections were 6.5 m.b. versus 3 the week prior and four-week average of 5.2 m.b. China was in for 32% of the high protein crop number. China's bean imports for June came in at 6.2 million metric tons, a new monthly record and the highest this year.

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