Sunday Night Grain Outlook, 5-17-09
Sunday Night Grain Outlook
By Duane Lowry
Sunday, May 17, 2009
OPENING CALL:
Corn= 1-3 lower, Wheat= 1-2 lower, Soybeans= 3-5 lower.
Weather will provide a warming temperature pattern and much improved drying/planting conditions during the next 10 days for most areas. Weather will receive a more bearish spin than it did Friday.
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Wheat will start lower on expected row-crop weakness. Technical conditions are vulnerable to weakness and interest in new short positions. Long-term support is 15-20 cents below Friday’s close.
Corn will start lower on bearish weather spins and expected follow-through selling pressures from Friday’s weak performance that caught many traders off-guard. What type of selling pressure this unfolds will be interesting to watch. While the weather pattern is improved, too many acres will be planted well past optimum planting dates, which will still warrant discussions of reduced yield potential and heightened risk premium justification. Technical conditions appear quite vulnerable after Friday’s performance and we know a lot of new longs were added recently that now have losing equity. Will the bearish reaction to weather be short-lived, or could we stay soft all week? Will further price weakness be limited to 5-10 cents, or could we experience another 20-25 cents of weakness from Friday’s close? The corn market has experienced some foundational changes during the past several weeks—smaller acreage expectations, reasons to scale-back yield optimism, improved demand expectations, stabilized/improved longer-term economic optimism. Consequently, we have a long-term supportive backdrop to work with and we are in the seasonal timeframe when the market tends to add risk premium, not remove risk premium. Thus, weakness this week will surely produce a buying opportunity, but patience may be rewarded.
Soybeans will start lower on improved weather prospects. However, it is the vulnerable technical profile that threatens to provide the downside energy. Many spec shorts were chased to the sidelines during the past couple trading sessions and the bullish rhetoric focused on cash strength was quite intense and traders were actively placing new longs, both flat-price and bullish spread positions, late last week. There is ample energy to fuel heavy liquidation pressures in both old and new-crop futures positions. Who knows what the longer-term weather will bring and thus the potential for last week’s highs to be either a major top or to be eventually violated on weather. However, with expectations that acreage ideas are rising, any notable price weakness this week may be quick to cause traders to ponder the possibility of having seen the highs for the year. If the environment is vulnerable to creating such thinking, then price weakness can easily become large enough that most recent buyers will be forced to the sidelines. Short-term downside potential is at least 50 cents.
In summary, improved weather will need to be digested by traders this week. Technical conditions are extremely vulnerable to long liquidation pressures. While a very bullish long-term storyline is still warranted for the corn market, improved weather and vulnerable technical indicators after Friday’s performance trapped many, which probably means the short-term price weakness may prove too intense for most current holders of bullish positions. Weakness this week will prove to be a long-term buying opportunity, but patience may be an important virtue.
This newsletter is prepared from information believed to be reliable. Early Market News, Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed are subject to change without notice.
