Content ID

314716

Grain market is teetering on the top of a cliff, analyst says

If weather is so bullish, why are funds selling a stronger opening every day?

The grain market is wavering – like it’s teetering on the top of a cliff.  

Of course, we don’t know which side it will fall on (up or down), but it’s certainly going one way or the other. There is a bullish forecast of warm/dry weather, but in June, that isn’t very threatening weather. In fact, warm weather is good early in the season in northern areas to get things growing.  

Dry isn’t good with it, especially for HRS wheat areas that haven’t recently received rain (which is most of the U.S. HRS wheat area).  For corn and soybeans, if this weather lingers into July and August in a 2012 like fashion, Katie, bar the door for the upside!

But, if weather improves to wet and warm from here, then Katie, bar that door to the downside.  

Today there is rain in parts of Montana, North Dakota, northern Minnesota, Texas, Oklahoma, Arkansas, Alabama, and Mississippi, with a mostly surprise storm that brewed up across eastern North Dakota and northern Minnesota, dropping some decent precip in some areas. That didn’t seem to deter overnight trade (nothing ever seems to), as the market rallied from the get-go despite a 64¢ downside reversal in HRS wheat yesterday, and a downside reversal in July soybeans and corn – and a divergence between July and new-crop corn/soys (old crop diverging downward while new crop is diverging upward).  When the old crop is no longer rallying while new crop is, it means prices are high enough to allocate the short supply. If no one wants to buy the product at the price anymore, does the supply (weather) still matter?

Another hypothetical question: If weather is so bullish, why are funds selling a stronger opening every day? Night trade the past few weeks has been higher every night, only to reverse most days or sell off from the opening. Why?  

Crop progress showed corn and soybeans are virtually all planted (and replanted), with corn 72% good/excellent (down 4% from last week). The Pro Ag yield model dropped 1.62 bu/acre to 177.71, now only 1 bu/acre above trend.  

Soybeans’ first crop rating was 67% G/E, down from 72% last year as frost damage was still being assessed (and killed soys replanted). Pro Ag yield models for soys start at 49.38 bu vs. 49.83 trend, but still a preliminary yield as many years were not enough planted for comparison. Early planted crops yields better usually, and this year is an early planted corn/soy crop.  

Winter wheat continues to improve, up another 2% to 50% rated G/E, now just 1% below last year despite a severe winter and dry start. Yield models suggest 51.69 bu/acre (up 0.13 bushels from last week) vs. 50.56 trend: The crop is getting bigger and has been all spring. Drier weather in winter wheat country is beneficial – it’s been very wet there recently and soils need to dry out before harvest starts.  

The devastation continues in HRS wheat country, as ratings dropped another 5% in HRS and barley rating (now only 38% rated G/E HRS).  

Oat ratings dropped 9% to 46% rated G/E, a dramatic drop as well.  

The only problem is that Canadian HRS wheat areas received their best rains this spring Sunday and Monday, and will help to alleviate drought there where two-thirds of the HRS wheat in America is planted.  

Topsoil moisture levels in the U.S. declined 5% last week, with subsoil down 1% for the first decline of this spring, reflecting the hot/dry weather of last week and weekend.  

It’s the moment of truth for grains … will they run to new highs (like HRS wheat did) and maintain them? Or, has the market already topped, and the divergence in corn/soys and downside reversals yesterday in HRS wheat, July corn, and July soys along with selloffs every day in day trade are a sign that smart traders are getting out?  

We note that export shipments are slowing (even in corn), with soys/wheat almost dried up. Is anyone left to buy these overpriced grains (other than to goose light-volume night trade)?


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NOTE:  Weekly "Marketline" Zoom 15 minute updates every Saturday morning

This will be a technical and fundamental review of the week, with market impacts and a summary of our take on what it all means.  Starting in June, Progressive Ag/Ray Grabanski will be hosting 10-15 minute weekly update "Pro Ag Marketline" meetings every Saturday morning at 7 am.  Contact anyone in our office with your email address to get on these updates.  

Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.  

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. 

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