Sunday Night Grain Outlook, 7-5-10

Sunday Night Grain Outlook
By Duane Lowry
Monday, July 5, 2010

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

Weather will find some mixed views and focus. Some will see weekend rains and near-term moisture expectations in the west as bearish, while others will suggest many of these acres need drying conditions and have already suffered uniformity and yield potential due to excessive moisture. Some in the trade will focus on heat and continued dryness in parts of the eastern and southern Midwest through the next several days, with some potential for improved moisture during the 6-10 day period. China received some weekend shower activity and near-term moisture prospects will help to shrink the total area of concern, while others choose to focus on those areas that were disappointed with weekend developments. The Delta's weekend moisture activity was disappointing and near-term expectations are somewhat iffy. Personally, I am concerned about the acres in the west where excess moisture has already been detrimental and shaved production prospects. I am concerned about chipping away at production potential in the Delta, as well as stressful conditions in the Ohio and Tennessee Valleys. So, while I expect the marketplace to craft a somewhat bearish slant to today's weather storylines, I see weakness tonight/tomorrow as likely having little ability to build downside momentum and should be seen as a buying opportunity.                     

News> Overnight European wheat futures rose to the highest levels since mid-July 2009, citing heat and dryness concerns in parts of Europe and Russia's farm ministry lowering its grain production estimate to 85 mmt, down from the previous estimate of 88-90 mmt due to drought.  

Wheat will start lower on bearish weather slants and expected row-crop weakness. Short-term technical indicators are poised for corrective weakness. Longer-term support will be found 10-15 cents below Friday's finish and limit any downside probe's attempt to develop multi-day energy. Trader attitudes remain predominantly bearish, but keep in mind that they have been caught off guard by recent strength. Overall conditions suggest more upside probing above last week's highs is likely during the next several weeks.                                 

Corn will start lower on knee-jerk bearish slants to weather forecasts. Short-term technical indicators are poised for minor weakness. Traders have a bearish bias and will be quick to label western Midwest rains and expected moisture potential in the eastern Midwest and Delta later this week and during the 6-10 day window as bearish. Longer-term technical support will be found several cents below Friday's close and ability to build sustainable downside energy below $3.75, basis Dec futures, may prove very limited. Personally, I believe we have lost enough uniformity and crops have suffered enough excessive moisture stress in key states, as well as heat and dryness concerns in parts of the Delta and southeastern Midwest that we must completely reject discussion of national yields exceeding last year. Instead, I am beginning to more fully embrace the idea that we are in fact dealing with a national production potential that is sub-160 bpa. Such a figure creates a very tight balance sheet and is worthy of prices higher than current values. From that perspective, I will see early week weakness triggered by technical conditions and popular assessments of weather/crop conditions as a longer-term buying opportunity. The trade is out of step with crop conditions and the type of uniformity that is required to produce yields similar to last year. Upside potential during the next several weeks remains much greater than current popular rhetoric suggests.         

Soybeans will also suffer from short-term technical vulnerability and a trader bias that is anxious to embrace perceived bearish aspects of current weather forecasts. Soybeans have been traders' favorite place to express bearish sentiment and I don't think that has yet changed. While I don't agree with this bearish enthusiasm, it may set its initial downside targets at last week's lows, which is down 11 3/4 cents from Friday's close. Technical conditions are not conducive to building sustainable downside energy below that level and such a probe early this week should be searched for buying opportunities. The fundamental backdrop remains bearish, but it is not as bearish as current popular rhetoric suggests. After some initial week weakness we will again be well poised for a notable price recovery event.                                   

In summary, the popular trader sentiment this afternoon will be to slant weather as bearish and to resurrect discussion of record national yield potential. I think such assessments of current crop conditions are just plain wrong. Technical conditions are poised to encourage buying activity on decent early week weakness. I believe corn will be the key and I view current US corn production prospects as enough below last year to create a very tight balance sheet situation and suggests corn has at least 50 cents of upside potential and probably more. If true, soybeans don't have the type of downside potential that broad-stroke fundamental analysis might suggest. I will search early week weakness for longer-term buying opportunities in wheat, corn and soybeans.           

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.