Sunday Night Grain Outlook, 6-27-10
Sunday Night Grain Outlook
By Duane Lowry
Sunday, June 27, 2010
OPENING CALL:
Corn= mixed, Wheat= mixed, Soybeans= mixed.
Weather provided significant and unwanted moisture across the northern Midwest during the weekend. Drier weather will occur this week in most of the Midwest. Moisture returns to central/western Midwest during the 6-10 day window, while extreme heat will focus on the eastern and southern Midwest during the 6-10 day period. However, this moisture seems to be tied to tropical developments in the US Gulf/Mexico, which currently seems to be leaning more towards Mexico and thus would minimize moisture chances for the US Midwest. Much of the eastern and southern Midwest and Delta will be dry during the 11-15 day window. Weekend moisture in the Delta was disappointing, but better chances are seen during the 6-10, but here too dependent upon tropical activity which at this writing might be diminishing moisture chances for the Delta. China continues to have areas under stress, but the size of the area is expected to diminish later this week, but confidence in this moisture is somewhat uncertain. I am not sure how weather should be labeled tonight. We have areas of concern, both from recent excessive moisture in parts of the US that have negatively impacted crop development and from dryness issues in parts of the Delta. The forecasts also offer some hint that parts of the southern and eastern Midwest will experience heat stress and rapid depletion of topsoil moisture. Yet, until reaching that tipping point, weather conditions will be mostly favorable. China's weather still offers concerns, some moisture opportunities exist, but confidence is shaky. Today's forecast doesn't likely cause anyone to aggressively buy the markets, but I think there will be plenty of caution about pressing the short side for weather-related reasons as we near recent lows.
News> The G-8 met in Canada Friday and Saturday, seeking to find a coordinated path to government debt reduction, but not at the expense of overall economic growth. Yet, Germany's Merkel characterized the consensus of the G-8 as believing the time for stimulus has passed. The US prefers a focus on stimulus spending through at least 2011 and deficit reduction moves. Geithner expressed a strong message that removing stimulus too early has a history of creating deeper financial problems. The European members of the group have a stronger desire for a more aggressive approach to reducing debt. The G-20 appears to be choosing a draft communiqué that will seek to have members cut budget deficits by 50% by 2013. The final communiqué is expected to also include consensus for balanced budgets by 2016. This would be a more aggressive spending cut than US officials wanted. This would also seem to embrace the recent European push for more aggressive gov't spending cuts and tax increases. The momentum has definitely shifted in favor of the economic hawks. Both sides will choose to describe the weekend developments as a good compromise on growth targets and deficit reduction focus, but personally, I felt the tone of this weekend's G-20 definitely warns of deflationary pressures ahead. If the mood to the political right is confirmed in the US mid-term elections, it may almost cement this move towards full deflationary pressures.
Wheat appears to have additional downside technical vulnerabilities after Friday's weak performance, but overall price tone here has been much more resilient than logic would have suggested during the past several days. I don't see a new fundamental storyline here, but the lingering realities of reduced Canadian acreage and disease concerns for the US srw wheat crop may limit trader willingness to press the short side. In all honesty, I don't know what to expect here short-term.
Corn will find mixed expectations. Some will point to weather as offering some moisture potential for the Delta and some needed drying for other areas of the Midwest. Some will also point to moisture potential for China. These same folks will also tout Friday's weak performance and expect follow-through downside energy. Still others will look at the weekend G-20 developments and view them as deflationary. Thus it shouldn't be difficult to find bears tonight. However, reports from the country express concerns about excessive moisture stress in much of the Midwest, as well as dryness stress in the Delta and parts of the southwestern Midwest. Technical indicators can be labeled mixed, but I don't see them as conducive to building downside momentum from current levels. Pre-report positioning for Wednesday's USDA reports may encourage short-covering activity. If we experience weakness tonight, I don't think it will be much and I don't believe it will be sustained. Expect crop conditions to show declines Monday afternoon.
Soybeans will also find mixed expectations for many of the reasons discussed in the corn comments above. However, I don’t believe technical conditions will inspire sustainable selling pressures, plus pre-report positioning should find traders concerned about lower than expected soybean acreage, resulting in short-covering interest. Many Midwest bean acres have experienced excessive moisture for longer than desired, which makes it difficult for me to embrace national yield optimism at this time. I recognize the longer-term downside potential and bearish fundamental storyline, but I will happily let someone else embrace a bearish position at this time for all those right reasons.
In summary, you can probably find whatever you wish to hear tonight. As for me, I am not sure what the next 30 days will hold for market direction, but I believe current national yield projections are too optimistic and therefore I am suspicious current bearish sentiment is a baited trap. The bigger picture item that has me concerned is the deflationary cloud that overhangs the global economies. I am anxious to see how outside markets react to this weekend's G-8 and G-20 summits, but those that want to see additional stimulus packages appear to have lost the momentum to those who prefer to focus on a more aggressive focus of cutting national deficits. In the current overall economic environment that would seem to suggest deflationary pressures to commodities that don't develop a clear and independently bullish storyline. Consequently, if we can't fuel agricultural markets with weather concerns, they may be vulnerable to declining price trends that are influenced by more than S&D factors?
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.
