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Weather To Cap Corn Rallies

Corn had a general evening up tone to end the week. Good crop and weather conditions could keep a lid on any potential rally. The Midwest will see favorable conditions for crop development over the next two weeks.  Weather models on Friday showed the development of a high pressure ridge June 17 to 21 over the central and eastern US. This may have gotten the market excited late in the day. However, unless it is a fairly prolonged event, there should be adequate soil moisture to maintain the crops. We'll have to wait until the USDA's Stocks and Planted Acreage Report on June 30th to find out how many acres were switched to soybeans in North Dakota, Minnesota, Wisconsin and Michigan. Until then, the market will be torn between talk of lower acres and good weather. As of June 1, 95% of the corn crop had been planted and 80% had emerged. This year's first condition rating puts 76% of the crop in the good to excellent category. This is well the 63% good to excellent rating during the same week last year and seems overly optimistic.

Technically, December corn futures put in a reversal higher after dropping to within a dime of the contract low. A bounce back to 480-490 on the December futures is a target on a correction. The US dollar had been strengthening since early May and keeping pressure on commodities in general but the reversal on the dollar index suggests that could weaken in the week ahead.

 

Spot ethanol prices have been under pressure lately and were lower most of the week as supplies are at 14-month highs and production was up.

   

... reversal higher after dropping to within a dime of the contract low.

 

Soybean futures lower but held short term technical support.

Soybean futures traded quietly mixed today as prices are testing short term support levels. For old crop, demand has been decent yet for exports and processing, but there are some signals emerging that might change that perception. Some processing plants will begin taking scheduled downtimes for summer repairs, which will slow production.

Overall basis levels seem to be steady but some are weakening as basis at the Gulf is getting wider as demand continues to slow for export. With South American soybeans trading at a discount to U.S. beans, export values at the Gulf continue to be under pressure.

Soybeans had been holding their value better than the corn and wheat over the past month and remaining at the early May values. We could be setting up for a period of soybean weakness as the Dec corn/Nov soybean spread corrects. There is some discussion of additional acres of soybeans in ND, MN, WI and MI due to the wet spring. While new crop prices are overvalued if we have a good crop, there will remain a large inverse between old crop and new crop prices. Through May 29, soybeans export sales are at 103% of the USDA forecast. Export demand could increase on Tuesday when the USDA releases its June Supply and Demand Report.

 ... discussion of additional acres of soybeans in ND, MN, WI and MI... 

 

Reversal higher on the daily wheat chart.

July CBOT wheat futures put in an outside reversal on the chart today after closing lower 19 of the last 21 sessions.  Selling seems to have dried up after prices filled a gap left from February 28 before the spring rally breakout. July KC wheat futures turned higher earlier in the week after holding strong support at 7.00. Minneapolis wheat also seems to have found support and is seeing crossover from oversold conditions on Stochastics (a momentum indicator). KC wheat is in rough shape after struggling with drought conditions in many areas and the spring wheat had the opposite problem with growers in North Dakota struggling to get the crop planted due to the wet spring.

The higher dollar particularly hurts wheat exports since the US is in direct competition with European wheat on the global market. The EU has exported a record 26.7 million metric tons so far this marketing year. Since the first week of May, the euro has lost in value against the US dollar. On Thursday, we saw reversals on both currencies: the dollar at the top of its range suggesting we could see some weakness in the dollar ahead and this would improve the competitiveness of US wheat exports. This and private analysts estimates for lower production on next Tuesday's report helped to push wheat contracts higher into the close on Friday. CBOT July wheat futures could go back to fill the gap left at 6.5125.

 

 

Crop condition ratings were stable last week ...

 

Milk

The second month class III futures contract (currently July) has been largely trading within a $1.80 cent range for the past two months as volatility has picked up and the market is struggling to post new highs. If the range continues to hold going forward it will be tougher and tougher to get an idea of where the market may be headed. An upside breakout of the range could lead to another rally of $1.50-$2.00/cwt, but on the other hand a breakout of that range to the downside would point to a selloff of $1.50-$2.00/cwt. At this point in time it’s important to be protecting yourself against that downside risk, but still managing the upside opportunity. Put options are a great tool to use because it will provide the downside protection needed, but still leave the upside open to take part in any additional strength. The Jul contract traded mixed within a wide range this week, but finished the week with a 24 cent loss. Much of this volatility has been fueled by the strong buying interest as well as strong selling interest in cash cheese. Strong bidding leads to strong up-days, while strong offering will lead to a sharp down-day, and we’ve been seeing a lot of both recently. The block/barrel average did finish with a gain of 6.25 cents on the week, this comes after a loss of 7.375 cents last week.

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