Sunday Night Grain Outlook, 8-30-09

Sunday Night Grain Outlook
By Duane Lowry
Sunday, August 30, 2009

OPENING CALL:
Corn= lower,     Wheat= lower,     Soybeans= lower.

Weather provides a chance for borderline temps in southeast MN, northeast IA and much of Wisconsin tonight. Any frost should be light and involve small pockets, it it occurs. No frost concerns exist through the balance of the two-week forecast. Moisture conditions/forecasts are favorable for a maximized finish to the 2009 season. Warming temperature trends exist, with 6-15 day forecasts calling for above normal temperatures and above normal precip. I wouldn't rule out a knee-jerk nervous/bullish reaction to weather tonight, but it seems like an unreasonable conclusion, as any impact would be seen as a fraction of a percent, in terms of national production significance. The lack of a broader frost threat and rising temperatures amid favorable moisture in the entire Midwest during the next two weeks will add far more bushels than any light frost event that may occur tonight.     

News> The weekly Commitment-of-Traders data released Friday afternoon indicated a larger than expected short corn position by the traditional funds. Index fund length increased slightly. What if wheat is performing a "watch me" role for corn? What if traditional funds that have been short wheat for a long period of time and exceeding previous historical short levels have a plan to do the same with corn? Fundamental support for such a move certainly isn't hard to understand. Index length in corn is massive and spreads are wide, making it difficult for index traders to make profits in a declining/flat market structure. Plus, you have all the regulatory fears that will weigh on long positions. This is something to ponder.    

Wheat will start lower in sympathy with expected row-crop weakness. New news is limited. Right or wrong, this market will remain weak an unable to build sustainable upside momentum until it is seen as being no longer broken. Fundamental profiles/backdrop remains bearish. Regulators are determined to "fix" this market and achieve convergence of the cash and futures markets. Convergence in this environment will result in sharply lower futures values. Index fund length is in trouble from multiple angles. Spreads appear likely to stay wide, flat price appears likely to weaken, regulators appear determined to remove excess speculative length/involvement. This entire situation isn't likely to end pretty.                  

Corn will start lower on the lack of a frost threat and a new warming trend to the forecast. National yield discussions continue to suspect increasing ideas, with fears of a large jump into new record territory. The last four Friday closes have been in a 2 3/4 cent range, suggesting the last few weeks of trade has been more of a "pause" in the downtrend than any attempt to bottom. As discussed above in the "News" section, the shift of traditional funds to a larger than expected short position bears watching and could be just the beginning of a new position building plan. Very early yield reports from the south talk of shockingly large yields. There have been some positive demand developments in ethanol, but there is nothing positive enough to offset a sharp jump into new record national yields. The producer has a very historically small percentage of his 2009 crop sold. Traditional funds may be planning a bearish campaign in corn similar to what they have done in wheat. The index funds appear vulnerable to an increasingly likely scenario of wide spreads, lower flat prices, and limited rally potential for months to come. All this is unfolding amid a regulatory environment that seems to have the index funds in the crosshairs. The new warming trend in the forecast may be just enough to begin unleashing an increase in confident selling pressures from multiple market sectors.      

Soybeans will start lower on warming temperature themes. Short-term technical indicators are not conducive to building/sustaining upward momentum.                                

In summary, wheat and corn have had bearish fundamental profiles for some time. However, the market's infatuation with frost concerns has kept potential sellers on the sidelines and it the case of corn, enticed small traders to establish long positions during the past several days. The current warmer temperature forecasts through the next two weeks may be enough to encourage more aggressive selling from multiple market sectors. It is not as easy, or certainly not as comfortable to express the same bearish confidence with soybeans; however, we have had a favorable moisture situation in the always important month of August and appear to have favorable moisture conditions likely through the remaining part of the growing season. Thus the warmer temperature theme could spark selling pressures in soybeans as well. I realize many probably don't want to read about such bearish potential, but that doesn't remove the realities of the situation. Downside potential in all these markets is much greater than people are willing to discuss publicly.