Sunday Night Grain Outlook, 8-2-09

Sunday Night Grain Outlook
By Duane Lowry
Sunday, August 2, 2009

OPENING CALL:
Corn= 2-3 higher,     Wheat= 1-3 higher,     Soybeans= 5-7 higher.

Weather provides 55% coverage of the Midwest during the 1-5 day window. Warming temperatures are seen in the 6-15 day window, with some "much-above" readings. Some dryness concerns for approximately 25-30% of China's soybean crop are developing and based on current forecasts these concern levels may soon intensify. Moisture concerns for India seem to be escalating and gaining media/trader attention. I am not sure weather is really all that bullish, but in relationship to this summer's overall benign forecasts, current weather appears bullish. The trade seems anxious to explain recent strength and excited about the prospects of having a weather market. Consequently, weather spin will be bullish.   

News> Geithner said that the American economy and recovery will not be strong enough to sustain with deficits coming down and people facing some very hard choices. When asked about the potential for higher taxes, Geithner said, "Well, we're going to have to look at—we're going to have to do what's necessary."

Wheat will start higher on bullish row-crop weather spin, "turning"/favorable price action and ideas this market has a very large pool of shorts that are vulnerable to feed-on-itself short-covering activities. New fundamental news is limited. While the fundamental support may be lacking, it wouldn't be difficult to see the current technical profile and excessively short large spec position combine to produce a 40-50 cent rally from current levels.                 

Corn will start higher on bullish weather spin and firm price action. While I think it would be quite easy to question the merit of bullish weather spin, it wouldn't prove fruitful at this time. The market has been looking at such benign weather for so long that the current forecast, in relationship to the previous weather, will be seen as bullish. This market found many shorts established during the month of July, but Friday's close was the highest since the July 4th break. Thus, we have plenty of short-covering energy to experience, as well as the usual amount of "let's get long" activity. I am not sure how much upside will occur, but to rule out another 20-30 cents would be a mistake. The 160+ yield talk of the past couple weeks may still be valid, or said another way, it is just as valid today as it was a couple weeks ago. However, USDA's history and the lateness of this year's crop would not support expecting a sharp yield increase from USDA in August. Consequently, it is possible that even a bearish report figure from USDA may not be bearish enough in relationship to what has already been priced into current values. So, with technical indicators suggesting we need more time in correction mode, it is not completely unreasonable to envision this pre-harvest corn rally peaking after the August USDA data. Now, all this sounds quite bullish, but producers need to look past this expected mountain peak and be concerned with the likely valley that will be found beyond the hopeful peak seen on the horizon. We are dealing with a likely very large 2009-10 corn carryout figure and I contend a non-inflationary foundational commodity backdrop. Longer-term downside potential needs to be feared and strength during the next 2-3 weeks need to be seen as selling opportunities.   

Soybeans will start higher on weather spin and strong price action. New news is limited. Right or wrong, trader yield talk is ratcheting lower and the pondering of quite bullish S&D scenarios is unfolding. India's poorer than desired moisture situation is gaining market attention and this is always seen as supportive world soy values. We seem to have more time to spend in a short-chasing environment.                             

In summary, supportive weather spin following on the heels of last week's impressive short-covering strength will be enough to likely generate a higher start. Trader attitudes are such that they will be quick to embrace any bullish weather spin, with little attention paid to the depth of its merit. Traders expect Monday afternoon crop ratings to decline. Traders are unsure of what to expect from FCStone when they release their latest US production estimates Monday afternoon. We seem to have a situation where buying interest is quickly building under the market, limiting any short-term or intra-day weakness potential.

**With the importance to the producer of this expected and unfolding pre-harvest peak, I will be updating this blog on a daily basis, with the producers decisions in key focus. Be sure to check daily for updated thoughts.              

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.