Sunday Night Grain Outlook, 5-31-09

Sunday Night Grain Outlook
By Duane Lowry
Sunday, May 31, 2009

OPENING CALL:
Corn= 2-4 lower,     Wheat= 1-3 lower,     Soybeans= 4-7 lower.

Weather provided slightly less than expected weekend precip, with most totals less than 1/2 inch. Planting activity has been active in most areas still seeking completion. Rains this week will be most concentrated early in areas that are done planting. Planting progress this week should appear favorable enough that planting delay concerns should diminish. Most acres are experiencing favorable conditions for early development and non-threatening forecasts through the next two weeks.        

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Wheat will start lower on expected waning upside momentum in the row-crops. New news is limited. Friday's inside day, higher close could have easily been culminating activity to recent gains, driven mostly by short-covering, with Friday at least partly influenced by end-of-the-month window dressing.                

Corn will find mixed trader focus tonight. Some want to see any rain in any segment of the forecast over any region as being bullish. Some will choose to focus on planting window opportunities. Others will suggest it is time to move beyond planting concerns and focus on favorable forecast/conditions/soil moisture profiles over the vast majority of acreage through the next two weeks. Technical conditions will find mixed spins, as some see Friday's "finally" rally event to jab a new high and produce a new high close as a breakout signal, expecting continued upward momentum to build this week. Overall price action during the last 2-3 weeks has been disappointing in relationship to expectations and any signs that Friday's upsurge lacks ability to build sustaining upside follow-through could spur liquidation pressures. The C-O-T report showed specs adding more length than expected.

Soybeans will also find traders arguing different storylines. Some expect price strength to continue indefinitely, citing panic about supply tightness and planting delay concerns. Others point to indications China may ultimately take less than expected old-crop and possibly push some sales into new-crop positions, as domestic traders expect China to release reserve stocks as needed through the balance of the current marketing season. Some also wish to point to expectations of final US 2009 soybean acreage climbing by 2-4 mil acres due to regional problems as well as ideas USDA may have understated soybean acreage in the March estimate. I see technical conditions as vulnerable and unable to sustain recent gains.                          

In summary, you will be able to find mixed pre-opening calls this afternoon. Most bulls will focus on expectations for ever-expanding money-flow into commodities, followed by what I would label as skewed perspectives on weather. Weather is not bullish as far as I am concerned. The unplanted acreage total continues to decline and should be minimal by the end of the week. Virtually no area is suffering from any type of longer-range dryness trend, with soil moisture profiles nearly everywhere in good shape and probably the most non-threatening Drought Monitor map seen in many years. Many acres were planted in an acceptable timeline and are off to a favorable start. Technical conditions appear very vulnerable in many markets. Market make-up profiles warn that sizeable transfer of ownership activity occurred during the past two weeks and the public, in my opinion, has a very late-established and top-heavy bullish portfolio, which is always a warning sign to bulls. A year ago we had the same warnings that were also ignored by nearly everybody. The scale/scope of the situation may be different than a year ago, but the structure/profile/make-up is the same. I am very concerned that are upside potential from here forward, without a drought storyline, is much less than current popular sentiment suggests. As for expectations of new money-flow into commodities, I believe there is a misguided assumption that commodity markets will return to the hyper activity found a year ago. First of all, nearly all commodity funds have less money to invest now than they did them. Secondly, every investor is more timid than they were 12 months ago. The overall economic mood may be less fearful, but the foundational merit of the economies remains fragile. Crude oil is in a price zone that likely will prove to be high enough. The stock market should also be at what proves to be the upper parameters for months to come. Gold, which was seen as heading significantly higher for many of the "buy commodities" rhetoric, has underperformed expectations, despite a sharply lower US Dollar trend, which before it happened was seen as a reason for gold prices to push significantly higher. My concern is that too many commodity-related markets are showing signs of being near the end of their trend, and not appearing to have the profiles needed to suggest continued ability to build upward momentum. Trade on both sides tonight/tomorrow certainly shouldn't be ruled out, but I can't understand or agree with the popular expectations that prices will continue to rally. Producers should be doing some very serious soul-searching. Current values are the best offered since the "doom & gloom" rhetoric has dominated trader sentiment. I still view the 2009 marketing year as one where the goal should be survivability. My concern is too many people are looking in the rearview mirror and assume last year's price spikes are somehow the new order, as opposed to what history would label as an aberration.              

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.